Credit Card Companies are Raising Rates, Regardless of Your Credit

With mounting losses from mortgage loan loss, credit card companies are looking to offset that money by raising credit card holders’ fees and interest rates. Some of the credit card companies that have started raising rates are Washington Mutual, Discover Card, and Bank of America (which shouldn’t be a surprise).

In many cases, they are doing this to customers that have good credit scores and pay on time. This isn’t something that they are doing just to people who are late with their payments.

Can they get away with doing this? There is a clause in the credit card agreement that a cardholder agrees to upon signing on the dotted line. It is called the universal default clause. This clause states that a card company can raise your rates at any time that they feel you are a risk. So, you could be paying on time and doing everything right and still get your rates increased because you missed a payment with another card company.

Recently, the Democratic-led Congress started to get aggressive with the credit card industry about this clause, putting pressure on the industry to change. Of course, the credit card industry responded. Credit card companies came out stating that they do not use these clauses. Some just changed the wording in their contract to state that they have the right to change the terms and conditions of your contract due to “weakening economic conditions.” That sounds like a universal default agreement to me.

So, what steps should you take as a cardholder?

1) Pay very close attention to your credit card statements. As I wrote about yesterday, complacency in this environment will hurt you. Pay close attention to what is happening with your account.
2) Be very diligent to make sure that you pay on time. With some credit card companies making the penalty rates higher for missing a payment, you certainly have to be careful. Some credit card companies are even changing the rules on how you can end up with penalty rates. It might become much easier to fall into that trap.
3) If your rates go up and you have good credit, move your account. It goes without saying – with good credit, don’t put up with a credit card company that practices this irresponsibility. Move your account somewhere else.
4) If it happens to you, don’t protest because it is not fair. It is human nature to protest because it is not fair. It isn’t fair. However, you agreed to it when you signed the dotted line. They can change it and there is nothing a cardholder can do about it.

Today, it has never been more important to pay attention. This is becoming a tough environment and companies are doing whatever they have to do to stay in business.

Copyright © 2008 Prudent Money and Bob Brooks. All rights reserved.