Default rate dangers in credit cards
By Melissa Wirkus
Credit cards can be a very difficult
thing to handle, and many people can find
themselves swimming in credit card debt
that seems to have come out of nowhere.
Having an “out-of-control”
credit
card is also another reason why many people
have low credit scores.
And if credit card companies do not make
it hard enough for people to pay off a
large balance, they are also now introducing
bigger fees known as “default”
rates that can really catch consumers
off-guard.
In an October 9, 2006 article by Aleksandra
Todorova of SmartMoney.com and posted
on Yahoo’s Finance page, “Plastic
Penalties,” looks into these new
fees imposed by many credit card lenders.
The article starts out by telling the
story of Mark Martinez of Moscow, Idaho,
who seemed to be an ideal credit card
customer who
always paid his bills on time, and sometimes
even carried over a balance, ensuring
that the bank made money.
But the next thing you know, Martinez
discovered that his interest was up to
29.99%, because his balance of $8,000
was “dangerously” close to
the $8,800 limit. This was strange given
his pristine history with the company
and great credit score.
“Despite his pristine history, Martinez
had encountered the latest scourge of
the credit-card world: the so-called ‘default’
rate, or punitive charges that credit-card
companies can impose on customers suddenly
deemed a higher credit risk. Default rates
are typically triggered by things like
a late payment or going over the credit
limit. But they could also be the result
of something as seemingly insignificant
as running up a higher balance.”
“Martinez isn't alone. ‘I've
been getting a lot of complaints lately
about interest rates going up on credit
cards, even by consumers who haven't been
late with their payments,’ says
Gerri Detweiler, author of ‘The
Ultimate Credit Handbook’ and a
consumer credit educator. That's not surprising:
With more people paying down debt as a
result of a mandated increase in minimum
payments, credit-card companies ‘have
to look for a way to keep profits up,’
she says.”
Now, credit card companies
are using these default rates more than
ever, and this is making a variety of
different people very mad. Credit card
companies can impose a hike pretty much
anytime they want, since there are very
few governing laws.
But if you have a good credit score and
overall credit history, you will probably
have no trouble getting a better rate
at a different credit card company; it
only takes a little shopping around.
Round up a few of those various “pre-approved”
offers that good credit holders receive,
and negotiate with your current card holder.
“Have at least one or two credit-card
offers in hand before you call, says Linda
Sherry, spokeswoman for Consumer Action.
‘Tell them, 'Look, these companies
have sent me this pre-approved offer.
I'm seriously considering taking this,
but I'm really loyal to you guys, and
was wondering if you could take me down
to 10.9%.'”
If this does not work, the best bet is
to probably switch your balance to a credit
card with a lower
rate, and pay it off. There are various
ways to get out of a bad credit card agreement;
you just have to use your head.
