Beware the Sudden Rate Hike
There are some credit card lenders out there who are trying to scam you. Theyll offer you a good interest rate, wait for you to spend a lot of money, and then suddenly jack up the interest through the roof. Suddenly youre screwed, with nowhere to go.
Is That Legal?
Well, it shouldnt be, and in most countries it isnt. Suddenly increasing your interest rate is generally associated with loan sharking and usury (the practice of lending money at illegally high interest rates) it isnt fair to raise the rate once you already owe the money, is it? Unfortunately, in the credit card world of revolving debt, the distinction isnt so clear cut.
In some countries, you might not have a legal leg to stand on your card issuer can do what they like to you. This is a problem in the USA especially, where credit cards are based in states like Delaware that have ineffective usury laws.
What Can Trigger a Rate Rise?
Credit card companies do give reasons for any rises, and some of them are valid. Many, though, can seem quite unfair a lot more sharing of information goes on in the financial industry than youd expect. Here are some examples of things that can saddle you with the extra-high penalty rate.
Paying late. If you dont pay your bills on time, the company seems quite justified in taking away your good rate. After all, you’ve broken the rules of your contract. Spending on other cards. You might think that one card issuer wont know what youre doing with a competitors card, but youd be wrong. Acting oddly or badly with one card can cause others to get jumpy and raise your rates.
Defaulting on another bill. Any bill you dont pay whether its for another card or for your electricity gets put on your credit record. The next time your issuer check your credit rating (they usually do it quarterly), theyll spot it and want to raise your rate. Bouncing checks. Again, this goes on your record, and spooks card companies.
Remember that your rate can usually rise at any time for any reason most credit card contracts only require the lender to give you about two weeks notice. Plus, in general, when one of your cards rates go up, theyll all go up. Thats another good reason to be scared of credit cards, and not to have too many.
What Can You Do If It Happens?
If you rate suddenly jumps up, the first thing you should do is try to cancel the card and move the balance elsewhere. If you cant do that for whatever reason, then contact your local consumer protection agencies. The next step after that, really, is to get a lawyer. It will also pay to make as much noise as you can. Complain to the company and the regulator by post. Contact your local newspaper and radio station. Make enough trouble that it would be easier for them to do the right thing just to shut you up. The squeaky wheel gets the oil.