Credit card interest rates can zoom up at a moment’s notice, but you can take steps to keep your rate low.
Think you’re doing everything right to keep your credit card rate low? Watch out. Nine of the top 10 credit card issuers now have “any time, any reason” change clauses in credit card agreements, said San Francisco-based Consumer Action, a non-profit organization.
“Very few card companies will admit to the universally decried practice of universal default,” said Linda Sherry, director of National Priorities at Consumer Action, “But it’s compelling that nearly all of the top 10 issuers reserve the right to change the terms of your cardholder agreement at any time for any reason, including in many cases, explicit references to credit information.”
Consumers may be penalized by their credit card company based on activity not related to that credit card, according to Consumer Action’s latest survey of 83 cards from 20 banks.
Still, actions related to the card have the most impact. The percent of card issuers who increase rates when cardholders make late payments has increased to 85 percent, from 79 percent in 2005. Missing a payment may result in an interest rate of more than 32 percent.
The average rate for fixed rate cards is 11.34 percent; for variable rate cards it’s 15.25 percent. If you carry a balance it’s a better idea to have a fixed rate card; variable rate cards change with the prime rate, which changes when the Federal Reserve adjusts interest rates.
Consumers should also watch out for 0 percent interest rate offers and balance transfers, which often cost a percentage of the amount transferred. Balance transfer fees often apply to new card holders too, not just existing customers.
Many card companies charge more for cash advances than for purchases.
Be aware that companies do not always have age requirements for authorized users. Primary cardholders remain responsible for all charges, regardless of whether an authorized user rang up the charges.
If you’re thinking about getting a new credit card make sure to read all the terms you can prior to applying. You don’t want to get blindsided after you have the card. It’s easier to read the terms in advance than close the card and get dinged on your credit history.
Published: Oct 2, 2007