Tuesday, February 24, 2009

Why your credit card company seems to hate you

The relationship between you and your credit card company may have just become a little more fractious.


A report yesterday from the online site creditmattersblog.com - confirmed by other media outlets - says that American Express is offering to pay some customers a $300 gift card to close their accounts. Those customers, who will receive notification of the offer by mail, must agree to pay off their revolving balances by April 30, and they will forfeit all rewards points.

In short: American Express is handing out scissors to cut up their cards.

On its Web site, Amex explains this extraordinary measure as helpfully giving customers the chance to "simplify your finances." Doing so also helps Amex reduce risk of defaults, which continue to burden credit card companies as the recession deepens.

Why doesn't Amex just close the accounts? Giving $300 to the customer encourages them to pay down revolving balances, so Amex wins both ways.

It's the starkest of several measures credit card companies are taking to cut debt and lessen risk, including an apparent increase in customers seeing their interest rates suddenly spike, even if they've kept current on all their payments.

"It's pretty much everybody now getting those increases," says Emily Peters of San Francisco-based Credit.com. "A year ago, it was just the good customers who had balances and low rates."

Peters suggests checking recent statements to see if your credit card company has been nibbling in other ways. In a survey to be released next week, Credit.com says that one third of respondents found some sort of negative change on their credit card statement, such as an interest rate change or increase in fee. "Imagine how many people might not be tuned into that," Peters says.

What are your options if your interest rate spikes? Not many. You can hunt for a better rate on another card, but good deals are difficult to find in this climate. You can call your credit card company and negotiate/yell/threaten to cancel your card - but even the best customers aren't as valuable as they once were.

What you should not do is work yourself into a huff, nor think too hard about banks taking billions of bailout dollars only to stifle the commerce this economy needs by jacking up rates, and decide to cancel that card in protest. Closing accounts (including you, Amex card holders) can take dozens of points off your credit score.

The best option? Pay off your revolving balances, so high interest rates become meaningless.

Then remember the increase when the economy improves and the credit card company begins to like you again.
-
Tell us your credit card story. Had a big rate hike recently? Find some new fees?

39 comments:

Anonymous said...

But what do you do when a company like HSBC, which just cut the credit limits of over 4 million american cardholders down to 300 dollars.

People who had 10,000 dollar limits and paid in full each month are being hit, just as often as people with only 500 dollar limits. Everyone got shifted down to a limit of 300 dollars, with no advance warning. HSBC will only say it was a "business decision"

Of course people that were carrying a balance above that 300 dollar limit were immediately socked with an "over limit" fee, which has got to be illegal.

HSBC is expected to announce massive losses in their consumer credit division next monday, and seems to be in serious trouble.

People who have just had their credit limits decreased through no fault of their own are also going to suffer from a a serious hit to their credit scores.

Does HSBC care? Nope.

Anonymous said...

I guess I'm ahead of the game, haven't had a credit card in years plenty of offers and "promises".
I was never really thrilled by the offers and couldn't read the small print that came with the card either. So I say pay'em up cut them up and shut them up.

ronnie

Anonymous said...

It's getting out of hand and frankly needs quick legislation to stop some of the practices they're doing.

My story is an opposite one. We have a balance with Bank of America and they sent us a notice that our rate would sky rocket to 28% if we want to continue using our card. We refused the new terms and will just pay off our current balance under the old terms. Keep in mind if we slip up and use the card for any reason, we lock ourselves into the new terms.

Well last week we received a notice from BOA that they increased our available credit up to $25,000 now. The are hoping we use it to lock in the shark loan rates of 28%! I was shocked when I saw it and frankly advise everyone to start cutting up their credit cards and only deal with banks if they have to... you'll be better off in the long run.

Anonymous said...

I've had a Capital One card for 13 years. Great rate. Never missed a payment. I was just notified my interest rate is going up by 10% and will become variable. No reply yet from Capital One. Searched the internet and found this is happening to many. Why?

pstonge said...

Thanks to reader Marc for noting that $300 comes in the form of a prepaid gift card.

Anonymous said...

>> The best option? Pay off your revolving balances, so high interest rates become meaningless.

Could you please mail that one to Geithner, Bernanke and Obama?

Anonymous said...

I have had two credit cards this has happened to: Wachovia (my bank credit card) and Capital One. Wachovia I could somewhat understand, it was the card I had never until literally that same billing cycle used, and had had less than 1 year, but I have been a Capital One customer for 10 1/2 years. But it appears Capital One did it to everyone - a rate hike. I've closed my account with them. The funny thing was my fiancee and I had already - that billing cycle - figured out how to pay them off, before we got the notice. So much for increased interest, 0 times interest is still 0.

Anonymous said...

Here is a clue for all of you.

The SYSTEM IS BANKRUPT!

Anonymous said...

If a credit card holder has a huge balance with a low rate and is doing his best to pay what does the credit card company think will happen when they take the rate to 29%? The people will do everything they can to pay and if that does not work they will just quit paying. Why is the government giving out billions to big business and allowing this to happen to the consumer?

Anonymous said...

Yes, credit card companies are getting harder to deal with -- and I don't just mean the foreign customer service people who do not understand English thus they do not understand what you're asking of them (because it's not in the script).

We pay our bills online. For the first time in three years, we paid a bill ONE DAY late so we were charged a late fee ($40). (We pay off our cards in full each month.)

Three years ago, they would waive the fee (since the payment came in online and it was only a day late). Of course, even three years ago a customer service rep. told us he didn't like us because we paid our bill off each month so we didn't make the company any money.

This time, anytime you complain the customer service rep. WANTS you to close the account and keeps asking you for permission to close the account. They must now be getting a commission for every account they close.

So the late fee remains and we await with baited breath to see if they raise our rate. On top of that, the second month they charged us even more finance charges for the ONE DAY late -- I thought they only did that with cash advances. With cash advances (I learned 20 years ago) that you can never catch up on the finance charges because they'll send you a bill with your balance but that balance is only good for the DAY they send out the bill. The finance charges on the cash advances keeps accruing until they actually receive your payment. It's a never-ending Catch-22.

chupacabra said...

I had the same thing happen with a Capital One card. I have a small balance on there. Because I had some crazy rate like 1.99% on it I just pay a little over the minimum. Hey its lower than my student loan.

Clearly I never use the card because they would have taken the lower rate amounts off first. I just got a notice that my rate is going to something completely outrageous. I swear it was like 32% but I may be wrong. I didn't really look at it all that closely because I don't use that card anyway.

I've never paid any of my bills late and don't carry a huge amount of debt. It really doesn't make sense to me why they would do that. I'd have to be an idiot to keep that account. Oh but now for sure I'm going to make sure I just pay the very minimum.

No doubt they are just waiting for me to mess up and pay my power bill or something totally unrelated late so they can jack up the rate on my existing balance.

Anonymous said...

Just so you know this is not happening to everyone. My wife and I have five credit cards from 3 different banks--Citibank, Bank of America, and JP Morgan Chase. We mostly use 2 of them and pay them off monthly. We have not received any notices of rate hikes or limit cuts from anyone. Because the cards we use pay rebates based on gas purchases, we have received about $1,000 in rebates over the last 4 years. We're not rich by any stretch, we just use the products wisely within their designed structure. We get promos on these cards and offers for new cards all the time--we ignore them all. Just want to express that you can use the system to your advantage if you work at it, and the CC companies are fine with this because they make money from the merchants and they recognize their lower risk on us so they treat us well.

Anonymous said...

Don't blame the credit card companies BLAME THE DEADBEATS WHO STARTED THIS FISCAL FIASCO WITH LIARS LOANS THE SCUMBAGS KNEW THEY COULD NOT AFFORD LEAVING RESPONSIBLE HOMEOWNERS TO PAY THEIR D--MORTGAGES AS WELL AS THEIR OWN AND THE CREDIT CARD COMPANIES SEE THE HANDWRITING ON THE WALL!

Ed said...

These people are slime. We bail out the industry and they jack up the interest rates of those helping them out. There needs to be much stronger laws controlling credit rates. It's just wrong. And Satanic.

Anonymous said...

If you want to know WHY WHY WHY... ask your neighbor who bought the spa tub, nice vacation, new furniture and then WALKED AWAY FROM HIS BILL. That's why.

Anonymous said...

I received a letter from my mortgage company offering me $250.00to pay off my HELOC and now I am afraid of what that interest rate might skyrocket too.

I have a chase card where I was able to transfer a balance over for 5.9% but my old balance is at 28% but I had to get that other amount off my Sears card which had a rate of 32%. So now I makeing sure nothing is going on my Sears card for a billing cycle and then I will move the balance off my Chase back to my Sears when they give me another teaser rate to move some money. I think that is the only way to play this game is to move and switch your balances to different cards. I had thought about a consolidation but fear that will just be a trap once all your debt is with one person. I set a goal to be debt free in 2 years as long as I keep my job

Anonymous said...

32% Seriously, are they going to send Fat Tony to whack knee caps soon?

I'm glad my mom made me completely frightened to use credit. Sometimes I get paranoid and pay my bills in advance- she put the fear of them into me- always pay the whole thing and ON TIME!

On the one hand, people need to have more self control. On the other hand- these CC companies were so aggressive for so long at recruiting new users. Surely the same logic on the mortgage meltdown applies.

And I bet they are squeezing people to force them to bankruptcy to force yet another taxpayer bailout. Disgusting. I hope the banks take the hit this time. It sounds like the Pawn Shop and Pay Day lenders are offering more competitive terms these days anyhow.

Anonymous said...

Credit cards are simple if you know how to work the system. I agree with someone who posted anonymously earlier, this rate hike fiasco isn't happening to everyone. If you're responsible with your credit, you're very much in the good graces of the CC companies. The basic principle of a CC is to not overcharge what you can't afford to pay off within a maximum of two(sometimes three) billing cycles.

I made the mistake years ago in college of overcharging (which many young people do) and racking up a decent amount of CC debt. Nothing too crazy... around $5,000, but for a broke college kid, that's a ton of dough! I learned this trick early on... open a card for the intro APR of 0% and hold on to it for the life of the 0%. Once the intro APR is expired, transfer whatever is left of the balance to another 0% card and then close the old card, and keep going. Yes, you are opening a new card every 6 or 12 months, but you're not paying the outrageous APR's and your payments are going directly toward your principle. Now, I know that opening and closing cards on a frequent basis effects your credit score negatively, but this system allows you to keep your balance under control and allows you to bring that score back up once you've got your finances in order. (keep in mind that you must try not to use the card if its not absolutely necessary since most new purchases don't qualify for the intro balance transfer rates).

Once your balance is down to a manageable amount, keep one card with the balance open and call the CC company and request a new percentage rate. In my experience, they have always lowered the rate. Also, its a good idea to keep another card open, but not in your wallet. I keep an extra card that is only for emergencies locked up in my safe at home, just in case I ever lose my wallet or it is stolen, etc... This way you have an emergency buffer while you sort out the canceling of other cards, etc...

Credit Card companies are businesses, its not in their best interest to keep your needs in mind first and foremost. BUT you can help yourself out if you know how to work the CC companies. At least, it has worked for me...

Oh yeah, and store credit cards are absolutely worthless. Yeah you might get 10% off your purchase that day when you open it, but you're going to get slapped with a rate of around 30% interest once the bill arrives. Store credit cards are a horrible idea, there is absolutely no need for them. Get a good card with a good rate and use it for purchases... do yourself a favor and stay away from store cards.

Just a little advice from someone who has dug the hole out of CC debt.

blpadge2 said...

I'll add the saga. I had a Visa card through Washington Mutual. Since d--mned scoundrels at Chase bought them at a fire sale: a. my interest rate has risen 10%, b. because of the increase finance charge my account went over limit, c. had to pay overlimit fee, d. interest rate hikes again because of being overlimit, & e. minimum payment increased.

I didn't ask to be transfered to Chase, they bought my bank. Maybe customers should have 90 days to switch when their bank gets bought out without fees or credit report hits.

All banks have lousy balance sheets in this mess, but rather than lend out the money the Feds have given them, their are soaking it up like a sponge to show a profit (or minimize their losses).

Anonymous said...

This is usary, plain and simple. Banks have been jerking consumers around for years with their schemes around interest rates. The greatest sense of satisfaction I got was when I declared bankruptcy after a divorce and cleared off about seven credit cards that had boosted their interest rates beyond 20%. Blind capitalists would say that the banks are balancing off their risk of lending, but anyone with basic sense knows that the banks are choosing to increase their profits on the back of their 'customers'... who are no longer able to transfer large balances to more competitive cards.

No one seems to ever wonder why the Fed can lower interest rates to almost 0% and how consumers never see so much as a decrease in their interest rates.

I hope the banks burn for their criminal behavior.

Anonymous said...

I just had two rate increases for Citi and Target National Bank. When I called them they said they were increasing the rate of the entire portfolio. I was able to decline the new terms but my accounts will be closed after that ends. I am someone who has excellent credit and has normally paid larger portions of the bill each month always on time. It is funny that even though they are raising the rates they keep offering me more money and increasing my limit. You really need to be diligent and review all those card notices you receive lately. They are really taking advantage of people.

Anonymous said...

Anon 11:58, the days of gaming the 0% balance transfer are probably behind us all. Chase just added a $10/month fee retroactively to all account holders who are working down a low-interest balance transfer, effectively negating the savings on interest rates.

I would encourage everyone to investigate membership at a credit union - they are much less likely to jerk you around.

Anonymous said...

I have a credit card that I don't even know (or care) what the rate is. You know why.. because I pay it off every month.

What a novel idea .. paying what you owe.

If you don't like high credit rates, pay off your debts.. not that difficult of a concept.

Anonymous said...

For anyone who is not glad to see the end of George Bush's redistribution of wealth from the middle class to the ultra-rich:

The comments by veriors posters here show that we paid taxes so George could give money to the banks. The banks, in turn, use that money to try to confiscate money from the poor and middle class via credit card fees and shocking interest rates.

So, dont talk to me about your distaste for Obama's attemp to discontinue giving to the rich.

chupacabra said...

I think its interesting to see that some of the responses seem to be of the "it can't happen to me" ilk. Are you guys SURE about that? Are you absolutely sure that you won't get laid off, sick, or suddenly need a new roof?

It's rather naive to claim that you are immune to this because you pay your bills on time and don't carry a balance. I pay my bills on time too and yet the interest rate on a card I don't even use went up.

As for blaming people who bought more house than they can afford, what does that have to do with anything? To me this is more of a bad business decision on the part of the bank than anything. They are jeapordizing relationships with customers who pay their bills. That is just stupid and could be why they're failing.

Anonymous said...

As a former banker, here's a little tidbit from someone that's been on the inside:

Bankers are in the business to MAKE money...and they'll make it any way they can.

Banks haven't cared about their customer for decades. They only care if your money will make THEM money, folks.

Same goes for insurance companies, finance companies, stock/investment companies - they're all the same!

My advice - educate yourself (know your consumer credit rights, etc), pay off your debts, and work to get yourself in a position where you don't need any of the bloodsucking banker-types for anything. Oh, and don't keep all of your money/accounts in one institution.

Anonymous said...

OK, I really must add to the credit cheating stories. I had an HSBC credit card. Very low balance I got a few years ago to help rebuild my credit.

I went online to make a payment 2 days before the payment was due but recieved a warning that the payment would not post in time to avoid a late fee. With computer systems, a credit card company cannot post the payment the same day. AMAZING.

So I called the number on the back to make the payment by phone. They wanted to charge me $19.99 to process the payment over the phone. I told them I wanted to pay the card off. I had the total from my online account but they said there was additional interest.

I had no other choice but to pay the full amount they had but I got the last word. I closed the account the same day.

Anonymous said...

HAH! I knew it was George Bush's fault :) Silly people.

Ron Wagner said...

What a shock: Credit card companies are vampires out to suck you dry. Guess what - that's what they've always been.

The only solution is to get get off the credit. Quit letting the banks control your life. Yes, they're scum, but we deserve it. We've been spending money that didn't exist to buy junk we don't need for years. This kind of pain and reality check is ultimately the only solution to our financial crisis.

Anonymous said...

Hate to break it to some of you but the main purpose of a business is to MAKE MONEY! Not to be nice, not to help you out because you have bills you can't afford, not to talk you out of making a purchase that will put you over your credit card limit or budget. They are not in business to be a charity (now there is a real racket) but to be profitable, manage risk and in the end keep people employed. People have to take personal responsibility and fulfill the obligations they have made instead of always blaming someone else. Believe it or not, spending more than you make or not having at least 6 months worth of income in a readily available savings account is not everybody else's problem but yours.

Anonymous said...

By the time this thing is over, the credit rating system is going to be meaningless. I hope FICO, Equifax, Experian, etc. all become insolvent, victims of this economic catastrophe. The credit report/FICO system of assessing an individual's credit quality is unfair, discriminatory and should be illegal. As Peter mentions, reducing the number of credit cards by the CARDHOLDER can and probably will LOWER your FICO score. Just goes to show that the big credit reporting agencies, as well as banks and credit card companies run the show in D.C. Is this a beautiful country or what?

Anonymous said...

I've had a Citibank CC since 1996. I charge less that $100 to it per month. I keep it for real emergencies and to maintain my FICO score. Part of the FICO score is determined by how long you've had an account open. I have really good credit. Recently the rate went from 9.5% to 16.99%. I called and they moved it back down to 11.9%. It's ridiculous. If they're seeing defaults rise, then why raise rates to the point that ppl continue to default on CC debt? Once again it seems like responsible ppl are left holding the bag for jerks who can't manage money.

John said...

Before you take that offer from AMEX, be aware that cancelling an existing credit card will likely LOWER your credit rating and in the long run, it may end up costing you more in the long run.

Anonymous said...

I also have had my rates raised on my cards. Again, I am like most people who posted. I have never been late nor have I missed a payment on any card!!!!! I have just used too much of my available credit (according to the companies) What really ticks me off though, is how the companies use, in my opinion, deceptive practices. I had my rate go up on my BOA card to 15%. I was told that they would honor the original fixed rate of 7% as long as I didn't use the card again. The account would remain open and I had the option to call back in the future to request a lower rate but if the card was used at all even for a penny the rate change would be effective on all outstanding balances. I then kept receiving balance transfer offers of 3.99 for 6 months to a year but upon careful examination I realized that if I did a 3.99 % balance transfer that was using my card and all other balances would jump to 15.99. I had them stop mailing and calling me with any offer!!!! I think it is crazy that they in essence are trying to get you to use a card that they have told you if you use your balance will more than double. Something has to be done with credit card industry. I do agree with whoever made the comment that this downturn WILL NOT last forever and when times are better I will remember BOA and Citibank and the treatment I received during our times of unemployment, especially since I had been an on time customer.

Anonymous said...

Neat housing price graph at NYTimes:
http://www.nytimes.com/interactive/2008/12/04/business/economy/HOUSING_PRICES_GRAPHIC.html

Anonymous said...

I think it's a crime that CC can increase your interest rate on any balances that you may carry. When you used the credit at the time of purchase then I think the rate should be held at that level. It's like going in to buy a car with a negotiated interest rate on a loan and 6 months later they decide to jack the rate. If they want to increase the rate then it should only be allowed on future purchases.

Anonymous said...

Yes, Chase has added a $10 service charge and increased the minimum payment from 2% to 5% on my balance with no opt-out. I called and went ballistic to the boss and the bosses boss and got nowhere. I had a 2.9% life time balance and now I have to pay 2.5 times as much each month or raise my rate to 7.9% until 2011 and then it goes to my regular purchase rate of 18%. Thanks a lot Chase.

Tamale Chica said...

A blogger in our firm just posted something about HSBC's insane practice. From what I understood, the guy had a $4,000 credit limit and never paid interest because he always paid before the hardcopy bill came. His reward? He now has a $300 credit limit. That is unbelievably stupid. It's BS decisions like shows what little business sense so many financial services firems are using.

Anonymous said...

Sometimes the customer wins. In 2007 I received an offer from one of the card companies - 0% interest for 6 months and then the rate changed to whatever. BUT, I could keep paying 0% interest after the initial 6 months if I simply used the card twice a month. Reading the small print, I wasn't surprised to see that payments were first applied to the lower interest rate balance. But I WAS surprised to see there was no minimum required monthly purchase amount. (I even called the company to make sure I hadn't missed something.) I transferred a $12,000 balance (the result of a home repair) and twice a month I go through a local fast food drive-through and charge one item off the dollar menu. After nearly two years, the balance that is accruing interest is under $100 and the interest charges are less than the 50-cent monthly minimum. I'm more than happy to pay them 50 cents/month for the $12,000. (And you can bet I get a call every month from this company telling me about all the great places I can use its card!)