I was recently interviewed by FOX news about the fact that credit card interest rates are going up even though the Fed has cut interest rates. According to Consumer Action’s 2008 credit card survey, several large creditors have recently said that “market conditions” could cause them to increase APR’s.
Credit card issuers can also site the ‘Universal Default’ provision when raising rates. Universal default allows a creditor to adjust your terms if your credit situation changes. This means that if you miss a phone bill payment, your rate could jump to the highest limit allowed by law. According to a recent survey from the Institute of Consumer Financial Education, 39 percent of credit card issuers said they apply the rule to customers, even if they had no late payments on their own card.
Other things to look out for include:
Fine print. According to a study conducted by the Government Accountability Office (GAO), creditors ploy customers by explaining fees in language that is hard to understand, burying important information in unrelated text, and utilizing other various strategies that reduce consumers’ ability to understand the agreement they are signing. It is very important to read and comprehend the fine print prior to accepting or applying for a credit card offer. If you don’t understand, ask an expert to explain it to you.
Teaser rates. Low introductory rates may seem tempting at first, especially if you are thinking of transferring a balance from a card with a higher interest rate. However, read the fine print before you proceed—the lower rate may apply just to new purchases. Also, the new rate may only be applicable for an introductory period, generally six months. Be sure to find out what the future rate will be after the introductory rate has expired or a payment has been missed.
While they may seem unfair, term changes are legal. The best thing you can do is to be aware of possible changes and reduce your reliance on credit entirely.