Five Tips on Combating Increasing Credit Card Interest Rates

In the recent past, Congress has been delving into unfair credit practices of credit card companies. These efforts are part of a larger effort by Congress to rein in the abusive practices of card issuers. While Congressional lawmakers debate the issues, there are things you can do to find solace from rising interest rates.

Credit card companies in many instances unjustifiably hike interest rates due to a drop in the customers’ credit scores. In some cases, interest rates rose from single digits to double digits, in some instances by as much as 15 points. Hopefully, Congress studies these rate hikes in more detail and prohibits card companies from increasing interest rates without merit. However, if interest rates are increased, customers should be furnished with a 45 day written notice as to the justification for the increases.

In the meantime, you can protect yourself from interest rate hikes by following these five steps:

1. Review your monthly statements

By looking at the fine print of your original credit contract, you will discover that card companies can change your interest rates at anytime without any justification.

Additionally, they reserve the right to change/modify any other terms of your credit card contract without your permission. Still, in cases of rate or contract changes, written notification has to be provided to you. The written notification doesn’t have to be provided prior to any contract changes by the card company.

It is important that you review your monthly billing statements and lookout for any changes. In the era of junk mails, it is sometimes tricky to distinguish change of term notices from credit card offers, but a careful overview of your mail can do the trick.

2. Stand Up for Lower Interest Rate

One day you open your statement and see a sudden increase in your interest rate. What do you do?

Talk to the card’s customer service and request your original rate. If the representative’s response doesn’t achieve the desired result, escalate the call to the rep’s supervisor. If the supervisor offers no results, write a letter to their head of consumer credit. Wait for a response.

If the final response is not to your satisfaction, it is best to end the relationship with that credit card company and stop using that credit card.

3. Stay on Top of your Credit Report

Always review your annual free credit report. You can request credit reports from the credit bureaus.

Recent changes to the federal Fair Credit Reporting Act forces the three credit reporting companies – TransUnion, Equifax, and Experian to provide you with a free copy of your credit report, as per your request, once every 12 months. However, I recommend using the only authorized Federal Trade Commission website, annualcreditreport.com to access a free copy of your credit report.

Beware of other sites promising a free credit report; don’t give away your personal information unnecessarily.

4. Empower Yourself, Take your Business Elsewhere

If satisfactory resolution is not obtained regarding interest rate hikes, perform a balance transfer. Why keep the unappreciative card company your business? You can transfer your high interest balance to another credit card. If you have many high interest rate balances, perform a credit consolidation or a debt consolidation to one low rate card.

However, read the fine print of card balance transfer offers, weigh the pros and cons, see if it makes sense. Balance transfers may require 3% transfer fee of the cumulative balance, not to exceed $75 fee threshold of many card companies. The best balance transfer offer is the one with no transfer fee and zero percent interest rate for the first 12 months.

Only do a balance transfer if you can pay off the entire balance within the first year of the transfer, after which a new fixed or variable interest rate will apply.

5. Limit Credit Card Use

As a consumer, you have the option limiting the use of credit cards to only emergencies. Avoid giving financial control to card companies.

There is some good news, the recent Congressional scrutiny has led JP Morgan Chase and Citigroup to voluntarily stop the repugnant practice of hiking interest rates based on shifting credit scores.