Credit Card Rate Hikes - Some Nasty Practices

Credit card companies are continually looking for ways to hike their rates and make more money. In the past, these companies were happy to make money off the interest paid on credit card transactions. Nowadays that isn't enough.

They want to make profits and their customers are the ones who are suffering because of it. Practices such as universal default and over-limit fees are becoming increasingly popular while at the same time hurting people who use their credit cards.

Unfortunately, credit card companies are getting away with their alarming practices. People are dealing with credit card companies that simply do not care about their customers and instead look for ways to make a profit from the errors, misfortunes, and even habits of their clients.

Here are some of the ways credit card companies can increase the amount you pay for your credit card.

Universal Default

Universal default is used to punish a customer for spending/payment habits, even if that customer has a perfect record with his or her credit card company. The card issuer does regular credit checks on that customer. If the customer makes a late payment on a phone bill (completely unrelated to his or her credit card), the credit company can consider that person a higher risk and increase the interest rate, in some cases doubling or tripling that rate. The same is true if that customer applies for a different credit card or gets too close to his or her limit on another card. In both cases, the credit card company can increase the interest rate, regardless of that client's perfect history with that particular credit card company.

Credit card companies look for the following triggers to increase the interest rate:

late payments on other credit cards, loans, or bills;

applying for additional credit

exceeding a limit on another card

a declining credit rating

If you are in the process of applying for a credit card, read the fine print. If there is a clause in there allowing for universal default, do not accept the credit card. Many cards have this clause in their contracts.

Bait and Switch

In this scenario, customers receive a letter from a credit card company indicating that they have been pre-approved for a credit card, usually with a low interest rate. However, the fine print notes that customers who fail to qualify for the rate offered can be issued another card at a different rate, usually much higher.

Over-limit fees

Nowadays, your credit card company may be only too happy to allow a credit card transaction that will put you over your limit. Rather than declining the transaction, the company allows it but charges you an over-limit fee of up to $39. That fee will be charged every month until your balance is back below the limit.

Tiered-rate schedules

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As reported by Consumer Action, tiered-rate schedules allow card companies to increase lower-tier fees without increasing the higher fees. For example: If a card company charges three different rates for late fees based on the balance of a card, that company can raise the rates of the lower two fees without raising the higher one. The company still makes more money, but fewer people will notice the rate hike.

Consumers Union and other consumer groups are now asking Congress to enact legislation that would respond to some of these issues. Among their requests:

Preventing late fees if the bill is postmarked by a specified date

Prohibiting over-limit fees if the card issuer approves the charge

Prohibiting universal default interest rates

Increasing penalties for credit card companies who break the law

Until such legislation is passed, credit card companies will continue to get away with their outrageous fee hikes that punish their consumers.

If you have been the victim of a shocking rate hike you may be eligible for compensation. Contact a lawyer to discuss your options.