Watch out for credit card rate hikes

I was recently interviewed by FOX news about the fact that credit card interest rates are going up even though the Fed has cut interest rates. According to Consumer Action's 2008 credit card survey, several large creditors have recently said that "market conditions" could cause them to increase APR's.

Credit card issuers can also site the ‘Universal Default’ provision when raising rates. Universal default allows a creditor to adjust your terms if your credit situation changes. This means that if you miss a phone bill payment, your rate could jump to the highest limit allowed by law. According to a recent survey from the Institute of Consumer Financial Education, 39 percent of credit card issuers said they apply the rule to customers, even if they had no late payments on their own card.

Other things to look out for include:

Fine print. According to a study conducted by the Government Accountability Office (GAO), creditors ploy customers by explaining fees in language that is hard to understand, burying important information in unrelated text, and utilizing other various strategies that reduce consumers’ ability to understand the agreement they are signing. It is very important to read and comprehend the fine print prior to accepting or applying for a credit card offer. If you don’t understand, ask an expert to explain it to you.

Teaser rates. Low introductory rates may seem tempting at first, especially if you are thinking of transferring a balance from a card with a higher interest rate. However, read the fine print before you proceed—the lower rate may apply just to new purchases. Also, the new rate may only be applicable for an introductory period, generally six months. Be sure to find out what the future rate will be after the introductory rate has expired or a payment has been missed.

While they may seem unfair, term changes are legal. The best thing you can do is to be aware of possible changes and reduce your reliance on credit entirely.

Kim McGrigg is the former Manager of Community and Media Relations for MMI.

  • The Consumer Federation of America (CFA) is an association of nonprofit consumer organizations that was established in 1968 to advance the consumer interest through research, advocacy, and education. Today, nearly 300 of these groups participate in the federation and govern it through their representatives on the organization's Board of Directors.
  • The National Council of Higher Education Resources (NCHER) is the nation’s oldest and largest higher education finance trade association. NCHER’s membership includes state, nonprofit, and for-profit higher education service organizations, including lenders, servicers, guaranty agencies, collection agencies, financial literacy providers, and schools, interested and involved in increasing college access and success. It assists its members in shaping policies governing federal and private student loan and state grant programs on behalf of students, parents, borrowers, and families.

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  • The Council on Accreditation (COA) is an international, independent, nonprofit, human service accrediting organization. Their mission is to partner with human service organizations worldwide to improve service delivery outcomes by developing, applying, and promoting accreditation standards.

  • The National Foundation for Credit Counseling® (NFCC®), founded in 1951, is the nation’s largest and longest-serving nonprofit financial counseling organization. The NFCC’s mission is to promote the national agenda for financially responsible behavior, and build capacity for its members to deliver the highest-quality financial education and counseling services.