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| The Basics | Why your credit card rate just went up
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Banks are increasingly pouncing on cardholders with any kind of chink in their credit report, a survey finds, with penalty rates of as much as 35%.
By MSN Money staff
Imagine opening your credit card statement to find that your low, low rate has more than doubled, even though youve always paid your bills on time.
It happens, and its happening more and more frequently, says a consumer-watchdog group. Nearly half of banks surveyed by Consumer Action now penalize cardholders for changes in their credit history -- changes that can range from a late car payment to a mortgage inquiry -- with universal default rates of up to 35%.
Five years ago, the group says, almost no banks had such a policy.
The penalty makes carrying a card balance very, very expensive. The average card balance was $3,632 in 2004 (the last year for which figures were available), according to Carddata.com. The minimum payment -- typically 4% of the balance -- would be about $147 a month. Paying $147 a month, a cardholder with the average non-penalty rate of 12.61% would clear the debt in 29 months and pay $560 in interest. But at a penalty rate of 28%, you wouldnt vanquish the debt for 38 months -- and youd pay nearly $1,900 in interest.
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"This is the only industry that re-prices something you have already paid for," said Linda Sherry of Consumer Action.
What trips their triggers
According to the Consumer Action survey, card issuers raised rates if any of the following occurred; the number that follows each item is the percentage of banks using such a trigger.
- Credit score gets worse: 90.48%
- Paying mortgage, car loan or other creditor late: 85.71%
- Going over credit limit: 57.14%
- Bouncing a payment check: 52.38%
- Too much debt: 42.86%
- Too much available credit: 33.33%
- Getting a new credit card: 33.33%
- Inquiring about a car loan or mortgage: 23.81%
Consumer Actions yearly survey of the credit-card scene looked at 146 cards from 47 issuers. The group found default rates as high as 35% (Merrick Bank). Runners-up for the highest default rates are Citibank and Providian at 29.99%. The lowest default rate is 12% (Arkansas National Bank).
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