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Are you paying higher interest on your credit cards than you
think?
Many credit card holders sign up for a credit account with an
8.9% interest rate and then later realize that their interest
rate has been bumped to 27.4%. Why?
You know that your credit score affects the credit card rates
that you qualify for. But, did you know that a little clause in
the fine print of the credit card terms and agreements, called
the "Universal Default Penalty Clause" may mean that you're
already paying a higher interest than when you signed up for the
credit card? What does this fine print mean to you?
If your credit score goes down or one of your other credit
conditions change, then your interest rate increases
significantly. This doesn't mean any new charges you make to this
particular credit card account: the higher rate affects the
entire balance. Yes, even items you purchased with the
understanding that your interest rate would remain the original
rate.
Your credit grantors periodically review your credit report.
Almost half of all credit card companies take advantage of you
when you are perceived as a delinquent or high-risk borrower. The
small print in your account information may include the universal
default penalty, which allows the credit card company to increase
your interest rate if it uncovers any of these six changes in
your credit report:
1. You have a late payment on any credit account. The
company doesn't care if you've never made a late payment to
them.
2. You go over your available credit line on any credit
account. Even if you unknowingly charge a small amount over
the credit limit, which many credit card issuers let you do; your
interest rate can be raised.
3. Your credit score declines. Just one late payment
can hurt your credit score. Experian reports that people with no
late or missed payments in the last year had an average credit
score of 759; consumers with one or more late payments in the
past year had an average score of 598.
4. You charge up too much on one account or many credit
cards. If you charge up your credit card near the limit, or
even charge up some of your credit cards over the preferred
proportional amounts owed, you could pay extra for the privilege.
The amount owed on a credit line compared to the available credit
is termed the proportional amount owed. With a credit card limit
of $5,000, the score will be higher if less than $2,500 is owed.
Even better is to owe less than one-third of the available credit
or less than $1501. Owing less than ten percent of the available
balance gives you the best possible rating. On the other hand,
owing over $4,500 on an account with a limit of $5,000 lowers
your score considerably, especially if you have too many credit
cards and other loans with high balances compared to available
balances.
5. Your charge activities indicate a high debt-to-income
ratio. If your credit card issuer sees that you've made many
new charges and believes that you're getting in over your head,
they may raise your interest rate. Even if this is a temporary
situation, like many new home owners who make many purchases in a
single month, the companies take advantage of the unsuspecting
credit card holder.
6. You open new accounts. Opening new credit lines,
especially consumer finance accounts, lowers your credit score
and adds notations like "Too many consumer accounts" to your
credit report. Once again, your credit card company may take
advantage of this to raise your interest rate.
Credit cards that start with a low interest rate can jump to
interest rates as high as 29.99%, if they find any of these new
conditions listed on your credit report.
Check your credit card statements closely; look to see if your
credit card grantor raised your interest rates. If you find that
you're paying more than you thought, call your credit card
company and ask the reason. Once you determine the cause, you can
work on your credit issue. After you've fixed the problem, call
back and ask for a reduction in your interest rate.
Copyright (c) 2005 Jeanette J. Fisher All Rights Reserved.
Jeanette Fisher teaches real estate investing and interior
design college courses. She became a credit expert to help her
students buy their dream home and multiple investment properties.
Jeanette is the author of "Credit Help! Get the Credit You Need
to Buy Real Estate" and other books. For more information on
building and maintaining a strong credit score, explore the Real
Estate Credit Help Center http://www.recredithelp.com
Credit questions? Ask Jeanette: http://recredithelp.blogspot.com/
MORE RESOURCES:
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