Credit card debt can be made worse through negligence

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The fine print in a credit card bill can be a daunting read. The terms are lengthy, they’re written in “legalese” and your eyes typically glaze over before you finish reading. Despite the complicated nature of these terms, they are important, and consumers should understand exactly what sorts of things to which they have agreed. A little known provision of most credit card terms is one that allows the credit card companies to raise your interest rates for any reason at all. You might think that most companies would only raise interest rates for cause, responding to late payments or insufficient payment, but you would be wrong.

The average credit card debt in the typical American household is nearly $10,000. With minimum payments recently raised to about 4% of the balance and interest rates that are more than generous, the credit card industry is a profitable one. The industry will soon be even more profitable after the new bankruptcy law takes effect this fall. Nevertheless, they are always seeking ways to find more profits, and the clause in your terms that allows them to raise your interest rates for any reason at all is a surefire way for them to increase their profits.

The companies check the credit reports of their customers from time to time, and then use anything negative that appears on the report to justify an increase in the interest rate. That increase may not be clearly announced; it may just appear on your bill as a different number than the one that appeared there last month. The wise consumer will read his or her bill carefully each month; otherwise an increase may go unnoticed.

“Anything negative” on a credit report doesn’t necessarily mean late payments, bankruptcy filings or other judgments against a consumer. It could be something as simple as a balance on an account that the credit card company thinks is too high, or too many open accounts. In fact, the reasons used for raising interest rates often seem rather arbitrary.

The companies justify such actions by saying that their loans are not backed up by collateral and that there is inherent risk in their business which must be minimized whenever possible. That ‘risk” is increased when a customer takes on too much debt, and raising that customer’s interest rate is a way to minimize that risk.

That may be so, but doing so to a customer who has an outstanding balance unfairly penalizes them and forces them to pay more for purchases that they have already made. What can you do if this happens to you? The best course of action is to call your card issuer and complain. More often than not, the company will reduce the interest rate to the prior level, particularly if there was no egregious offense, such as a late payment, to justify the increase.

Should your issuer not agree to lower your rates, you may wish to shop around for another card. The market for credit lending is an aggressive one, and you can probably find a better deal. No matter what you do, make sure that you read the terms of your credit card bill carefully, and check your credit report often. It’s better to be safe than sorry.

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