Wednesday, October 8, 2008

Finance | Credit Card Rate Increases

Credit Card Increased Its Interest Rates For No Absolute Reason

I am one of those obessively punctual people who make sure to pay all of their bills, mortgage and credit card payments on time. I even do it the old-fashioned way with a checklist, even if I can automatically schedule recurring online payments. Somehow, going through my checklist, logging online and double-checking that the right amount was paid on the right date, then placing a check mark next to the creditor in question makes me feel good. Something accomplished!

Now, I wish I had paid as much attention to reading the now and the notices regarding card agreements that these credit cards like to send out ever so often. Typically, I throw those out without much thought!

Anyway, I am almost never late. The one or two times I have been late on a payment were due to unavoidable circumstances.

Therefore, when I checked my statement for a business credit card recently, I was shocked beyond words to see that the APR interest rate has been increased to 21.19% from 7.99%! What????

My first thought was that I had made a late payment the previous month, and the credit card had automatically done a default APR. So I quickly checked my 'checklist' to see when I made the payment. It showed that I did it on time. Then I logged to my online credit card account to verify what I had noted in my book. Yup, I had not been late.

When I called the credit card - Advanta Small Business Credit Card - they told me that they had sent out a mailer with the notice of an amendment to their interest rates. Well, it had been sent to my residence in the US and since I was here in Singapore, I did not read it.

This is what I found out - so please those of you who have credit cards with sizeable balances on them had better beware. Credit card companies can magically increase the APR with advance notification through mailers of the impending changes. They will give you a period of time (short!) to dispute the changes. And you have to do this in writing. If you dispute the charges, the most likely scenario is that you have to clear the balance and close the account. This may not be helpful if you have no way to clear the balance, so disputing it may not be an option to begin with.

Now, I am quite angry about this situation. My solution is to completely transfer off the entire balance to another business credit card with a lower fixed APR - and find someway to quickly bring that balance down, in case this other credit card decides to magically increase its APR to an exorbitant figure as well.

I try to pay more than the minimum monthly payment suggested by the credit card company. Why? Because the minimum payment required only stretches out the debt nearly indefinitely. These two charts below show the difference between what happens when one pays only the minimum monthly and when one starts making bigger payments to bring down the debt.

Source: Consumerist

You know what I think. Things have gotten so bad that credit card defaults must be on the rise, and the credit companies are pushing the buck to those of us who have been managing their debt well. People just like me, with excellent credit scores and a clean credit record, and who want to keep things that way. Such people are the ones who will have to pay the high price because we will always find a way to keep up the payments.

But this APR increase from Advanta is complete madness. As soon as I transfer the balance, that card is history! That's one customer you have lost Advanta.


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