Scrutinize Your Monthly Statement
Find out if your credit card issuer raised your rate or lowered your credit limit.
First thing to check: your card’s interest rate. A striking 44 percent of Americans don’t know the rate on the card they use most, according to Standard & Poor’s. Credit card companies are required to notify you in advance of any rate increase (unless you defaulted), but you may have missed the announcement in the mail. If your current rate seems higher than you remember, unearth your old statements to see when the bank hiked your rate. The average rate for a plain-vanilla card is now about 11.5 percent; 13.7 percent for a cash-back card.
Next thing to check: your card’s credit limit. In better times, your card company may have upped your limit to nose-bleed levels without your asking. If you’ve never charged near that amount, you might be inclined to ignore a drop from, say, $20,000 to $10,000. But lowering your limit can pummel your credit score. If your limit was cut from $20,000 to $10,000 and you carry a $9,500 balance, you suddenly appear more loaded with debt and less creditworthy. So if your score dropped because Capital One lowered your limit on its card, Bank of America might then raise the rate on its card in your wallet. “It turns into a horrible vicious cycle,” says Robert Manning, author of Credit Card Nation.
Your issuer may also have increased your minimum monthly payment, from, say 2 percent of the balance to 5 percent. If you are struggling with large debts, you may find yourself suddenly unable to meet that higher minimum.
Nitty Gritty
Open the Mail You’d Rather Toss
Read those mouse-print mailings explaining upcoming changes in your card’s terms. Yes, you may have to get out your reading glasses. But doing so will give you enough time to complain if you learn that your card company is about to hit you with a new fee, new penalty, or higher interest rate.
Get Ahead of the Curve
Prepare yourself for a higher rate or lower limit — you’ll be in better shape if either comes.
Generally, card issuers looking to raise rates or lower credit limits scrutinize people with balances over $5,000, says Arnold. If you fall into this category, try to finesse a rate hike or a lower limit by paying down your card’s balance in the next two or three months or by transferring half of what you owe to another card. Some cards that accept balance transfers offer a 0 percent introductory rate for the first year. That low rate may offset the 3 percent balance transfer fee many cards charge.
Other Resources
Where to Find Low-Rate, Balance-Transfer Credit Cards
You can find a list of balance transfer cards offering 0 percent rates for the first 12 months at bankrate.com. And moneybluebook.com has a list of cards that charge no transfer fee but provide a shorter 0 percent interest period.
Try to Convince Your Issuer to Restore Your Terms
A personal plea may keep your card company from boosting your rate, raising your minimum, or lowering your limit.
Once upon a time, you could get a lower credit card rate just by asking — if you were a good customer. These days, success doesn’t come so easily. But “you should try,” says Gerri Detweiler, a consultant to credit.com, a card-rating Web site. So if your rate just went up and you pay your credit card bill on time, phone the company and ask to have the old rate reinstated. If the rep says “no,” ask for a manager. You may have to threaten to close your account to get a counteroffer. (Just make sure that you have a back-up card in case the rep takes you up on your vow to go elsewhere.)
You should also call your card issuer if you want to challenge an increase in your minimum payment or a cut in your credit limit. Ask for a delay in the minimum payment hike if you’re in a financial bind and can’t afford the higher amount.
Voice of Experience
Why You Need to Phone Politely
Keep your cool when you call your card company for better terms. Gail Hillebrand, a senior attorney at Consumers Union, knows of one woman who phoned her card issuer after it lowered her credit limit and so irritated the rep that the rep dropped the limit even further.
Set Up an Automatic Payment Plan
Avoid missing a due date and the accompanying costs for being late.
If you miss your credit card’s due date, you could get hit with a late fee, an interest rate hike, and a rate hike from one of your other cards. So now’s the time to set up an automatic payment plan that takes money directly from your bank account. Choose an amount that will likely cover your minimum monthly payment. This way, you won’t get spanked with a late fee just because your Chihuahua ate your monthly statement or you were out of reach in Patagonia.
What Not to Do
Don’t Punish Savings to Pay Off a Card
“We used to tell people not to keep money in a savings account earning 5 percent when they could use it to pay off a credit card at 19 percent,” says Detweiler. But in today’s economy, a stocked emergency savings fund is crucial. Detweiler recommends reducing credit card debt as much as possible, but keeping enough cash in the bank to pay bills in case you or your spouse loses a job. “Stay liquid,” she says.
Find a Better Card
Switching plastic can get you a lower interest rate and better terms. Just be sure you do it right.
Fed up with your current card or just want to replace it before your issuer’s recently announced oppressive terms kick in? Start the hunt for a new card before canceling. Once you cancel, your card’s account freezes and you need to pay off the balance with the current terms. Charge something new and your interest rate, even on an old balance, will spike to the new, higher one.
Detweiler suggests trying a credit union, because these near-banks often offer lower rates and fees than competitors. (Find out which ones you’re eligible to join, if any, by calling the Credit Union National Association at 800-358-5710.) You can scour the country for the best card deals at bankrate.com, creditcardratings.com, and credit.com. To see whether the card you have is right for the way you charge, try the free billshrink.com credit card calculator.
Hot Tip
Change Your Credit Card Tie-Ins
Before cancelling your current card, make sure you switch to a new card any automatic charges that have been pegged to your plastic, such as magazine subscriptions or monthly bills.
