Avoiding Unfair Interest Rates From Credit Cards Companies

Can You Protect Yourself Against Rising Credit Card Rates?

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There's a lot of talk these days about unfair credit card practices and rising credit card interest rates. The news is filled with stories about people who pay their bills on time, yet somehow find themselves hit with higher credit card interest rates. There are horror stories about consumers who are hit with double-digit rate increases just because their credit score changed by a few points. And retroactive rate increases are ruining even the best-laid payment plans of people who have never missed a payment on their credit card bills. It just doesn't make sense!

Unless you can pay cash for everything (which isn't an option for most of us), we all have to use credit cards. So how can you protect yourself against potentially unfair credit practices? The first step might be to see what's driving the debate about credit card interest rate increases.

The back story: U.S. senator fights against unfair credit card interest rates

In early December 2007, U.S. Senator Carl Levin (D-Michigan) defended consumer rights at a subcommittee hearing on unfair credit practices. Levin actually fired verbal barbs at credit card issuers that knowingly attempt to raise interest rates on customer credit card accounts.1

Levin made a strong defense of cardholders who "play by the rules."2 He argued that it's unfair for people to have to watch credit card interest rates escalate because credit card issuers simply decide they should be "repriced."2

Levin's crusade began in May 2007, when he and Senator Claire McCaskill (D-Missouri) introduced The Stop Unfair Practices in Credit Cards Bill (S. 1395).2 Although the bill had yet to be enacted into law as of December 2007, it's designed to stop all credit card interest rates from increasing EXCEPT when1:

  1. An introductory interest rate expires (e.g., when a zero or low promotional rate ends);
  2. A variable interest rate adjusts according to a predetermined rate index, such as the prime rate;
  3. An interest rate was previously agreed upon by both card issuer and cardholder; and/or
  4. The cardholder agrees to the credit card rate increase when it's first proposed.

A spokesperson for Senator Levin said that the senator is committed to arranging more hearings on other unfair credit card practices in 2008 and beyond.3 That fact should give credit card users hope for the future. But for now ...

How do you guard against rising credit card interest rates?

There may be no precise formula for avoiding unfair credit card interest rate increases, but these simple suggestions may help:

  • Read the fine print. Even though a lot of credit card legal language is confusing, take time to read it carefully anyway. If you have questions, ask them; all reputable card issuers are required to offer customer service support, either through toll-free phone numbers or via online support.

  • Keep making on-time payments. While lawmakers decide how to deal with future credit card rate increase issues, make regular payments for all your bills. Late or missed payments may lower your credit score, which can, in turn, affect the interest rates you pay on credit card debt.

  • Don't sign up for too many credit cards. It's great to take advantage of different credit card offers, especially when you can receive special deals and savings. But too many inquiries in your credit history can reduce your credit score. Remember, any credit card you sign up for places an automatic inquiry on your credit report. Also, the more debt you carry, the lower your credit score tends to be —particularly if you're approaching the credit limit on one or more credit cards.

And consider one more suggestion: Cross your fingers that the likes of Senators Levin and McCaskill can make their arguments stick the next time the subcommittee hearings on unfair credit practices are convened.

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