Are Credit Card Changes Making You Hot Under the Collar?

The heat of the summer sun is probably not the only thing that is making you boil these days. Credit card issuers who are also feeling the pinch of the credit crisis are making their own changes and those changes can mean trouble for consumers.

There has never been a worse time to have credit card debt. In the wake for the credit crunch banks and credit card companies are trying to cover their potential for more loss by raising interest rates and lowering credit limits. Even consumers with great credit scores are seeing their scores get lower and lower because of these practices.

Why is this hurting credit scores? Let s say you have a credit card with a $5000 limit on it and you have a balance of $1500 – right now that ratio is good because you balance is under 30% of the high credit. All of a sudden that limit gets lowered to $2000 and suddenly your balance to high credit is at 75%. This could potentially drop your credit score 20-60 points depending on what the rest of your credit looks like. And suppose this happens to 3 or 4 of your credit cards – you could be looking at a 100 point drop in your credit score. And while raising your interest rate in itself may not hurt your credit score, it certainly will make it harder and longer to pay that card off.

Can they legally do this? You bet. At least for now. They are suppose to notify you 15 days before they make a rate change or any change for that matter to your credit card agreement. The most important thing to do is check your mail. What may look like junk mail may not be. It may very well be a nice little letter from your credit card company saying they are going to raise your interest rate from 8.49% to 26.99%. Or that they are lowering your credit limit from $10000 to $3000. So pay attention and take the time to open all the mail, even if it looks like something you normally would just throw away as junk or you could be in for a big surprise the next time your credit card bill comes.

In the last few months almost every credit card issuer has raised their interest rates up at least 1 1/2% and most in the industry predicts that by the end of the year most will raise it at least another 2% or more. Some card issuers are doubling and even tripling their interest rates and this won t abate until the middle of next year when the new credit card regulations go into affect. Until then,expect credit card companies to squeeze everything they can out of consumers.

What should you do? Your first instinct upon receiving a letter like this may be to close the account. This is not the best approach. If you do this you are shrinking you re over all available credit and other credit card companies may follow suit and raise your interest rates to astronomical amounts. You are also closing out that credit history which could also hurt hour credit score. Your first step should be to call the credit card company. Ask them why this happened and if there is any way to reverse it. Secondly look at your other credit cards. Do you have any with a lower interest rate that you could transfer all or part of your balance too.This could also help in lowering your balance to high credit ratio. It is always better to have 3 or 4 credit cards with low balances (compared to the high credit) then one or two cards with high balances.

The good news: President Obama has signed a credit card reform that will go into affect next year. No longer will credit card companies be able to:
• Have hidden fees
• Increase interest rates because you missed a payment on an unrelated
credit card or for no reason
• Raise rates without first notifying you 45 days in advance
• Charge late fees until 21 days after the statement closing date
• Impose a late fee if a payment is received on a due date that the credit
card issuer is closed.
• Increase interest rates for the first year you have been issued a credit

The one “gotcha” to this is that because credit card companies make money off of these practices we may see more and more companies initiating an annual fee which right now 80% of credit card companies do not. Again, read your mail because they will have to notify you in advance of this change.

So be smart, stay calm and we will weather this temporary downward spiral of credit card issues. As with most unpleasantness, this too shall pass… Have a great summer!