Blog: Your Credit Card Terms May Change At Any Moment

Added July 23, 2008 by Melanie G. Rogers

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While it may not feel good to carry a credit card balance, what's worse is when credit card companies change the terms of the card you carry in their favor and without warning. This can even happen to you, the one with the high credit score and pristine payment record.

While I don't know for sure, I speculate that card companies do this because they've maxed out other forms of making money. So by raising your interest rate or shortening the time you have to pay back your balance, they can collect more interest. It almost seems like a game. Team A is the consumer and Team B is the credit card company. Only Team B keeps changing the rules along the way.

Consumer Action just announced the results of its 2008 Credit Card Survey. Among the results:

-Four of the top 10 credit card issuers said they would raise the interest rate on a credit card for reasons beyond a consumer's control. These include "the economy," "market conditions," and "business strategy."

-77 percent of issuers surveyed (17 of 22) said they could change a cardholder's annual percentage rate or terms "any time for any reason."

-Five financial institutions said they would lower a credit limit because of perceived customer risk. That is a decline in credit scores, late payments and balances that go too close to the credit limit.

While I'm a firm believer in a free market, which we no longer have in the U.S. anyway (because we have so many government regulations), some of these business practices are unfair to consumers. I mean specifically those which are out of consumers' control. At some point consumers may give up, wondering "what's the use in having good habits if the credit card company will change my terms anyway?"

On some level I can understand the poor financial risk idea - companies have to protect their business. And consumers have to learn there are consequences to their actions.

Here are some recent business practices that consumers reported to Consumer Action:

Following you down. As consumers pay off large balances, the credit limit is reduced so that the balance is always close to the credit limit.

-Sorry, you're over limit. Credit limits are reduced to levels lower than the current balance, triggering over limit fees and requiring a large "balloon" payment of the over-due amount. This practice also puts the consumer at risk of being hit with a penalty interest rate.

-Where's my credit limit? Cards are declined at the point of purchase, and only then do cardholders find out that their limits have been reduced with no warning.

-Ganging up on consumers. One credit card lowers your credit limit, which lowers your credit score, which causes another of your cards to lower your credit limit.

While consumers are often advised to keep cards so as not to affect their credit limits, on some level credit card issuers are shooting themselves in the foot. If I as a consumer have a choice among credit cards - am I going to keep or pick the one who keeps changing terms on me? Unlikely.

As I went to pay off one of my student loans recently I considered putting part of the transaction on a credit card but the student loan lender would not agree to it. I looked into using convenience checks but in all cases the credit card companies did not give points or rewards for using them. So there was no benefit to me the consumer to involve them in my transaction. Finally I also thought about moving a student loan balance to a credit card to get a lower interest rate.

While the credit card company was offering me a 5.99 percent interest rate , which was better than the 8.25 percent rate I was paying on the loan, I did not feel comfortable that the 5.99 percent would last for the life of the loan. I tend to take calculated risks and this was one I felt I'd lose.

Your best bet is to pay off your card balance every month or don't use one at all.

Note about the survey: Consumer Action is a non-profit group based in San Francisco. They looked at 41 cards from 22 financial institutions.

July 23, 2008.

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