Though all credit card companies intend to make
a profit, some can be downright mean. They may offer an attractive interest
rate and keep this
rate until you've spent a heavy amount of money. And once you're on the hook with a fairly large credit card balance they hike the rate up on you. At that point you're in a jam, making your interest rate skyrocket while you owe too much to avoid it.
You might be onto something if you think this sounds like something normally practiced by loan sharks. If it swims like a shark and bites like a shark then it just might be a shark.
In many countries, rate hiking is illegal, as it isn't considered fair to raise interest rates after debt has been incurred. However, in the United States and some others, you might not have a legal leg to stand on – your card issuer can do what they like to you. This is because, at least here, credit card companies may be based in states like Delaware that have ineffective usury laws.
Rate Hike Triggers
Credit card companies do give reasons for any rises, some of which are valid. However, there are ones which seem highly unfair. Moreover, a lot more sharing of information goes on in the financial industry than you'd expect. Here are some examples of things that can saddle you with the extra-high ‘penalty rates.
Paying late. If you don't pay your bills on time, the company will take away your attractive rate. This one is fairly valid, as you have broken the rules of your contract.
Bouncing checks. This is an action which is recorded in your credit report, and may be acted upon by your card companies.
Spending on other cards. If you spend heavily or incur penalties on one card, don't be surprised if another hears about it and raises your rates because of it.
Defaulting on another bill. Similar to the last trigger stated, bills you don't pay get put on your credit record. The next time your issuer checks your credit rating (they usually do it quarterly), they'll spot it and want to raise your rate.
Understand that most credit card contracts only require the lender to give you about two weeks notice. Further, as these companies share information, when one of your cards’ rates go up, they'll all go up. This is a good reason to be wary of credit cards in general.
What Can You Do If It Happens?
If you do experience a rate hike, the first thing you should do is try to cancel the card and move the balance elsewhere. If for some reason you can't do that, contact your local consumer protection agencies. If that too fails, the next step is to get a lawyer (an expensive affair, so avoid if possible).
Also, never be afraid to make yourself heard. If you mail to that company, and the regulator, and local media networks complaining of your problem, then you might make give enough incentive for that company to lower your rate simply to keep you from being a hassle (or bad PR).