Factors That Trigger Credit Card Rate Hikes
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Factors That Trigger Credit Card Rate Hikes
Overview
Are credit card companies out to take advantage of you? While they offer the convenience of making purchases and paying them off over time, some practices border on the unethical. Whether or not they're breaking the law, these companies often leave consumers feeling misled.
Understanding Credit Card Practices
Credit cards provide essential financial flexibility, but they also come with an intricate web of terms and conditions. Professor Elizabeth Warren of Harvard Law notes that some companies use misleading tactics, such as promotional rates, to attract customers while hiding complex terms in the fine print.
Types of Credit Card Users
In the industry, there are "deadbeats" and "revolvers." Despite its negative connotation, a "deadbeat" is actually someone who pays off their balance monthly, avoiding interest. Approximately one-third of Americans fall into this category. "Revolvers," on the other hand, carry a balance, and are considered the industry's most profitable customers. The average American household carries around $8,000 in credit card debt, twice what it was a decade ago, contributing to record profits for credit card companies.
The Allure of 0% Interest Offers
Promotional rates like "0% interest for 6 months" can be beneficial if used wisely. However, for those who don't pay off the balance in time, the rate can skyrocket after the promotional period, leading to higher costs.
Triggers for Rate Hikes
Credit card companies cite various reasons for increasing rates?"some valid, others deceptive. These include:
Late Payments
Missing a payment deadline, even by a few hours, can trigger higher rates. The industry's tactics?"like setting due dates on weekends or holidays?"further increase the likelihood of late payments.
Spending Beyond Credit Limits
If you overspend on one card or make a late payment, it can trigger a "universal default clause," causing higher rates on other cards you own.
Defaulting on Other Bills
Your financial behavior on non-credit card bills (like utilities or mortgages) can also affect your credit card rates. Credit bureaus track all your payments, and a lapse in one area can lead to increased rates across your cards.
The Impact of Deregulation
The credit card industry's profitability soared after the removal of interest rate caps. Coupled with technological advancements, credit cards have become widely available, yet costly for some.
What to Do If Your Rate Increases
If you find your interest rate increased unexpectedly, consider canceling the card and transferring the balance elsewhere. If that's not possible, reach out to a consumer protection agency or a lawyer for assistance.
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