Huge Interest Rate Increases Predicted

Banks could charge 50% more on credit cards

Credit Card providers are in deep trouble!  Defaults and late payments are at an all time high.  On top of consumer debt, banks like Bank of America and Citibank are burdened with billions in toxic mortgages.  Providers are stretched too thin.

Their solution? Reduce their exposure by reducing credit lines and charging brutal "default" finance rates.  You may have received a envelope from your credit cards marked "Important information about your account inside".  When you open it you find it is a garble of legalese in 6 point font that you probably threw away.

That may have been your notice that the credit card company was changing the way they charge the "default" rates.

Default rates are the astronomically high interest rates that are charged when an account is not payed on time.  Your stuck with this rate until you get rid of the card or negotiate a new rate.  Traditionally, if you paid at least the minimum and never missed a payment you wouldn't have to worry about being penalized by these default rates.

That is about to change. 

Credit card providers are now using new criteria to determine if you should be paying the default rate.  It has nothing to do with your history with them, it has everything to do with their evaluation of your total credit picture.  Again, their objective is to minimize their exposure and maximize revenue on the risk.

These of course are the same people who were mailing, unsolicited, pre-approved cards to college juniors with no employment history.

So what are the new criteria? 

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). 

   When a credit card company doubles the rate on the balances it is carrying for a customer, that's a signal that it is no longer worried about losing that customer

So what can you do if you trigger a default rate on a card?