Tell me about it. I've seen several of my accounts get rewarded with higher interest rates during the past four months. This era should have taught us one thing, though. Carrying balances on credit cards does not mix well. I hope every reader I have has this as a goal for 2009-2010: get to the point of carrying no credit-card debt; pay in full after that. It's really the only way to insulate yourself from the shenanigans these card issuers play.
From Bloomberg:The banks use risk-modeling systems to predict the likelihood of default, said Garuccio of the ABA.
Michael Megeath, a Treasury analyst in Tulsa, Oklahoma, has five credit cards and has accumulated more than $40,000 in debt. He said he has tried to negotiate with American Express to decrease the 13 percent interest rate on his Amex Blue Card.
“If a bank raises the interest rate on a person with a lower credit score, even though he’s current on all of his payments, it will cause the financial collapse of the cardholder,” said Megeath, 61. “Who’s going to bail me out?”
Read the rest of the story here (link).
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Friday, February 13, 2009
Punctual Payers Rewarded By Card Companies With Higher Rates
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Alternate headline: "Punctual Payers Pummeled with Punitive Pecuniary Penalties"
ReplyDeleteYeah I really can't believe that we (collectively, as a nation) allow for changes to terms on existing balances. This is insane, and shows how addicted to credit cards we are.
ReplyDeleteIf we collectively revolted-it would put an end to this abuse. But just like when gas went to $4.25/gallon-we just seem to grin and bear it. Maybe we do have too much money?!?
DM, I should have had you write my headline. Ha!
ReplyDeleteCM, thanks, couldn't help myself :).
ReplyDeleteWierd all my interest rates are below the floor level (even though I pay in full each month). My AMEX Clear its 7.91% when on the website the lowest is like 12.24 for that card. Ditto for my BP Visa and Sony Visa, both from Chase 3-4% below the lowest interest for each card on the "terms and conditions" for each respective card. I pay in full each month and always the day after my statment cuts (one day grace period is all I need) even though all my cards are 20-30 days after the statement cuts until its due.
ReplyDeleteForgot to add I've has all these card for years!!
ReplyDeleteDaniel, your rates are tied to older programs. If you were a new customer today, you'd be getting those advertised rates you see.
ReplyDeleteWhatever you're doing, keep it up. Some of your compatriots aren't faring so well.
I was listening to "On the Money Show" last night. A caller called in and stated her rates had been raised and she was advised by the credit card company to opt out. She wanted to know what the show's opinion was. Caller was told not to opt out and to accelerate her payments to the credit card company and pay off the balance. This would keep her credit line and credit score intact. Also debt to ratio utilization wouldn't be affected. What if you can't afford to pay the higher rate? Can't transfer the balance either to a lower interest card?
ReplyDeleteI opted out of Citibank and now they are sending me letters to reconsider. What's up with this? My interest rate would go to 24.99% from 9.24% if I reconsidered.
Bank of America followed suit with raising my interest rate from 7.9% to 15.49%.
These companies are not in the business to help us. Help us by helping themselves it seems.
I am not interested in maintaining a credit score anymore because it seems like a losing process. Debit card and cash seem the best alternatives to credit cards in my book.
CiifIcare
Two things, CifIcare. One, would you mind sending me a copy of that Citibank letter -- asking you to reconsider? Redact all of your personal information.
ReplyDeleteTwo, if you're not interested in maintaining your score, what does that mean?
Hi. Dan Ray, editor of CreditCards.com here. We do a weekly survey of credit card rates, and yesterday, the national average took a big jump, from 11.58% APR to 12.25%. Among averages in eight card categories we track, five increased, one declined and two were unchanged. http://www.creditcards.com/press-releases/CreditCards-Weekly-Credit-Card-Rate-Report-February-12-2009.php for the gory details.
ReplyDelete"oh, I see you are having trouble making your payments. Here's a solution - let's make sure you have trouble making your payments by raising your interest rates."
ReplyDeleteMy friend said she opted out when Bank One changed to Chase because of the high rates. A year later Chase sent her a 0% offer for 15 months. She said she was glad the supervisor told her to opt out with Bank One. She is with Chase now and so far so good.
ReplyDeleteI have Chase and so far my purchase rate is 6.9% and cash advance rate is 15%. Promotion will end soon and purchase will be 10.74%. Don't remember the cash advance rate though.
CiifIcare
Cif, my email address is plastic101@gmail.com. Forgot to include that.
ReplyDeleteYes Far Left that is exactly what they are saying while laughing all the way to the "bank" with our bail-out money in hand. I was listening to a money show where the panel was saying the CEOs sit in their conferences and just laugh at the consumers who are being suckered in.
ReplyDeleteReminds me of "House of Cards" which aired on CNBC last night.
My husband says I get too carried away with these shows and with money discussions, but we're being affected by all this and trying to balance a budget and stay solvent is not an easy job. He doesn't want to do it LOL. Just let us get behind...he wil beat me to this website! LOL
CiifIcare
CM;
ReplyDeleteSure getting it out now and sending particulars your way!
CiifIcare
Thanks, Cif.
ReplyDeleteThe rate increases are a general response to the current credit conditions. But this won't be the end of it. The new credit card regulations should also cause aggregate rates and annual fees to increase.
ReplyDeleteIts sorta amusing watching all the debt junks cheer for the changes as if all other things will remain equal.
Every time I read one of these stories about some debt junkie I just want to puke. Uses credit cards to fund his painting business? What the hell? Why would you need credit to run a painting business? Its mostly labor and jobs are done within days.
And the guy with 40k in CC debt? What its from? Hookers and beer? Of course they never say, because if they did they nobody would care.
I'm curious, what does a revolving account really cost the bank? Assume it's a big bank, and the customer is super-prime (1 % risk of delinquency) and rarely carries a balance: like me, and many who are complaning loudest.
ReplyDeleteI really don't care if Chase charges 30 percent, since I don't pay them a dime. But if their cost of funds is near zero, risk is near one, rewards cost two, and overhead is whatever, how does all that add up to thirty?
Understand that I'm not yelling, "ripoff." I'm seriously asking how they choose my rate.
Anon, I can't even answer that. I have no idea how they come up with 30% -- when they might be profitable at a level that is above 8%.
ReplyDeleteI can only guess that they have computer models that spit out these rates.
Their cost for funds is no where near zero right now. They can't use interbank loans or hit the discount window to fund credit cards long term.
ReplyDeleteThey have to rely on the ABS markets and right now investors are only buying if the rates are attractive. This explains why even prime borrowers are getting rate increases right now.
But if a bank increases your rate from 8% -> 30% I would guess its because they have determined that you aren't making them any money and they are trying to get rid of you.
Agree with Carnap. Their cost of funds are much higher now. Nowhere near 0%.
ReplyDeleteSince this customer pays in full, the rate increase does nothing to harm the customer. Could be Chase is hoping you'll be offended by the hike -- and close the account.
But then I always wonder why the card issuer doesn't just close the account on their own. A card issuer can close an account for any reason.
"But then I always wonder why the card issuer doesn't just close the account on their own"
ReplyDeleteI would imagine they could be worried about government and public reaction. If they close the accounts it looks like they are limiting credit if they just increase the rates it just makes them look "greedy".
I don't think credit cards in a few years are going to be like they have been over the last 7~10 years. As they change their pricing models they are going to have to either change the terms or get rid of a lot of customers. Ultimately a good thing, but its going to be a painful adjustment particular for those that started their adult life during the credit bubble (folks now in their 20's and to a lesser degree 30's).
My credit card interest rates are a little higher than I would care to pay if I actually carried balances on them. Even working in the financial industry, I am not immune to the credit card companies interest rate hikes, but you'd think their risk based modeling systems would be able to detect that I'm not likely to default.
ReplyDeleteAt any rate, since I don't carry balances, it doesn't matter. I pay the balance in full by the end of the month and the only reason I use my cards are for the reward points and the occasional game of arbitrage. Other than that, I don't need them.