Posts Tagged ‘credit card rates’

Call me naïve, but, given the rise in credit card defaults, you might think that credit card companies would try to make it easier for their customers, particularly those who are in trouble, to pay off their credit card debt. These companies should be working with their customers to lower the interest rates and restructure the debt — if for no other reason than to avoid getting stuck with the bad debt when consumers are unable to pay.

However, that is not what’s happening. Credit card companies are instead raising the interest rates on their credit cards. Take Citigroup, for example, which plans to raise interest rates on their credit card products for some of their consumers in an effort to help lessen the blow of the $1.59 billion in losses that they’ve seen in the third quarter of 2008 alone. Their strategy isn’t to make it easier for their cardholders to pay off their debts in these tough economic times; instead, they plan on leveraging their credit card business to make up for losses elsewhere in the company due to the tight credit markets, delinquencies and defaults.

On average, Citigroup is raising its interest rates three percentage points, and most consumers don’t realize that, by law, credit card issuers can make these changes at any time, provided they give the customer advance notice. A spokeswoman for Citigroup, Jeanette Volpi, said that the customers affected are those who haven’t seen an increase in at least two years and that they can opt out if they’d like and continue using their card under the existing terms until it expires.

This new policy directly conflicts with the commitment that Citigroup executives made to Congress in 2007, when they were testifying in opposition to legislation that would have imposed greater regulations on the credit card industry. During a hearing on Capitol Hill, they pledged not to raise any cardholder’s rates until after his or her account expired. (The legislation didn’t pass.)

Even still, Citigroup is hardly the only company moving forward with this policy. Companies such as JP Morgan Chase, American Express and others are moving forward with very similar interest-rate policies in an effort to manage their losses and ward off the problems that they see coming from the looming financial crisis.

Have your credit card interest rates gone up this year?

You just might be able to get a lower interest rate on your credit card by — believe it or not — calling and asking for it! Especially if you’re a loyal customer or have good credit.

It sounds too easy, but think about it: The interest rate on your credit card is, essentially, just an agreement between you and the issuer. That means it’s open to negotiation. So although the issuer has no legal obligation to lower it, you have no legal obligation to remain a customer either!

If you have a good credit score or your score has improved since you opened the account, you have a great shot at a lower annual percentage rate (APR). Long-standing customers and those who haven’t had recent unpaid bills (at least six months of on-time payments) also have a better chance.

Another point to consider: Your credit card company can borrow money at the federal fund rate, which is usually in low-single-digit percentage points. However, cardholders like you are borrowing from the issuer (if you carry a balance) at far higher rates — 16%, 18%, sometimes well over 20%. So there’s probably room for a compromise.

Also working in your favor is that there’s plenty of competition in the credit card market. The cost to acquire a new customer may be as high as $100 or $200, so it makes sense to keep a card customer in the fold.

The bottom line is your request for a lower APR has a pretty good chance of being accepted. And don’t be afraid to ask for a very steep drop. Depending on your current rate, start negotiations at a 5% or even 10% reduction.

What should you say when you call? I recommend you be polite and non-threatening, but firm. “Hi, I’ve been a customer for a while, I pay my bills and have good credit. I’ve gotten many offers from other credit card companies with lower interest rates. So I want a lower APR on my card with you, or I may consider switching. Can you help?”

If you pay off your balances every month, then you may think you don’t need a lower interest rate. That’s a fair point, but what happens if, just by accident, your monthly payment is received late? Then you’d pay a higher late fee than you would otherwise.

If you do order your credit score, make sure you get your three FICO scores. And if you do switch to a lower rate, don’t close a long-standing credit card account — your credit score will drop substantially.