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Credit Card Interest Rates

post #1 of 24
Thread Starter 
Anyone look at this article?

I understand the concept, that if your FICO drops, then you're at risk. However if you're only outstanding debt is to one agency which you're making timely payments on, that's just nuts!

If you have available credit on inactive accounts, then your interest rates go up...even if you make more than the minimum payments on time every month.

As someone who is in debt moreso than she's use to, I would be appalled if this happened. In fact, I've been closing out cards that I haven't touched in a year, simply because I don't use them and don't want to see this happen to me too.

Rude Credit Card Surprises
post #2 of 24
Wow!

Credit card interest rates are already ridiculously high as they are. It's ridiculous that they would spontaneously increase for people who already pay in time.

One thing that I don't understand in the article too... they mentioned that she paid a $8 internet fee. Any idea what that would be? The only think I can think of is a fee for making an internet payment... but that couldn't be that high, right?
post #3 of 24
Thread Starter 
I was surprised about that $8 fee too. I don't have a discover card, but I think you're right...the convenience of using the internet to pay your bill costs you an additional $8.

I don't pay anything for mine when I pay online.
post #4 of 24
This will likely be changing as the FEDS are getting involved
post #5 of 24
same concept that your car insurance rates are based on your FICO score! what the heck does car insurance have to do with credit???
post #6 of 24
Thread Starter 
Quote:
Originally Posted by katiemae1277 View Post
same concept that your car insurance rates are based on your FICO score! what the heck does car insurance have to do with credit???
I think the theory behind that is whether you make your payments on time (cause how will they pay you if they haven't received your money) and if you're a trustworthy person (if you make you're payments ontime, then you have a mindset that is trustworthy).

I do agree though...if they use FICO scores it should be done lightly and more so on how many accidents YOU have caused (rather than accidents you have been in..you can't help if the other person on the road is a nut job.)
post #7 of 24
Quote:
Originally Posted by katiemae1277 View Post
same concept that your car insurance rates are based on your FICO score! what the heck does car insurance have to do with credit???
See I can comment on both of these items.

1. Credit card rates are based on your FICO score because that score shows your debit to income ratio. The more debit you have, and the less you make the more risk you are to a bank. Now there are several things that the article doesn't say. Anytime a fixed rate changes on a credit card a bank has to give you the opportunity to reject it. They will send out a notice allowing you to freeze your rate where it is, but the condition is that you have to stop using the card.
- Do I agree with this? In a way yes. Fico based lending works for some banks because they are able to get rid of their riskier customers allowing the better customers to get more benefits (lower rates, better cards, higher limits ect...). Does this happen? No. Banks are greedy.

2. You car insurance is based on parts of your credit report (not your FICO) because it helps them asses a better risk score for you. Lets put it this way. We understand that two people living in two different areas pay different amount for insurance. The farmer who lives in Iowa is going to pay far less for his pickup truck then the Investment Banker that lives in Manhattan who drives a BMW. The same thing goes for credit. A person who has never paid a bill on time in their life drives differently than the person who has. The good part about insurance companies using credit is that they aren't held the the same laws as a bank, so if you have some sort of problem with your credit (your Mom got sick, you got sick, you lost your job) they can take that into account when scoring you. A bank can't.
- Your driving record is always going to trump any sort of credit scoring with an insurance company. If you have DUI you are going to pay more than someone who doesn't.


If anyone has questions in regards to this feel free to PM me. This is what I do for a living!
post #8 of 24
but see, my thought is that if you have a lower FICO score, that means that you probably have a higher debt to income ratio so how is raising your car rate gonig to help you make your car insurance payments on time? also, if I am making my insurance payments on time, what difference should it make if I pay my credit card late? the 2 are not interchangeable IMO
post #9 of 24
Quote:
Originally Posted by katiemae1277 View Post
but see, my thought is that if you have a lower FICO score, that means that you probably have a higher debt to income ratio so how is raising your car rate gonig to help you make your car insurance payments on time? also, if I am making my insurance payments on time, what difference should it make if I pay my credit card late? the 2 are not interchangeable IMO
Using credit, from an insurance perspective, has nothing to do with your payments to them. They use it to determine if you are likely to file more claims than an average person. It's a rating factor like: age, driving record, where you live, the type of car you drive, ect. Insurance companies also don't use your FICO, because that score is used to determine interest rates. Most companies either use the insurance based score that the credit reporting agencies provide, or they have their actuaries draw up their own. The one that I use and talk about every day is internal to the company that I work for. However, other large insurance companies use what ever they'd like.

Did you get an "adverse action" letter? If you did, call your insurance company. Tell them to explain it. If they can't, tell them you'll go shopping.
post #10 of 24
This was brought to my attention by our personal banker at our bank a few years ago when we were negotiating a mortgage. To put it simply, if you have 10 credit cards with $0 balance but each of those cards have a maximum limit of $5,000, then the bank considers that you have $50,000 already in debt (10 cards by $5,000). Why? Because you could get a loan from the bank today and then you COULD (not saying you would) go out tomorrow and run every one of those cards up to the maximum. So the bank has to protect itself and that is how they do it. At the time I had $0 balances on about 5 different credit cards in my wallet (Sears, The Bay, Zellers - none of which I had used in the last 3-4 years) which were considered debt. I immediately cancelled all my cards except my Visa so my credit rating would improve.
post #11 of 24
The thing about this that concerns me the MOST is that to get your FICO, the credit card companies have to put in a credit check, and they do this pretty much annually, and in some cases even quarterly.

Too many credit checks in a short period of time REDUCE your FICO.

On my credit reports I noticed that the credit checks from many of the credit card companies seem to come in waves: they all hit your reports at about the same time, which WILL and DOES drop your FICO, which then gives them the opportunity to increase your interest rates because your FICO has dropped.

Talk about a Catch-22 - they are CAUSING the FICO drops so that they can increase your rates?

Am I the only one that's caught this? How the heck can we change this practice? I noticed that none of the articles in the media have touched upon this point AT ALL.

This is what REALLY gets my goat about this whole issue. It is devious and unethical, IMO.
post #12 of 24
MY insurance company started jacking my rates, last year. At first, it was only a dollar or two, a month. In January, I got an "adverse action" letter and a $20 per month increase in my premiums. THAT'S when I called them and was advised that it was because of my credit report.

Since I've been trying to buy a house, I've worked very hard, to clean up the credit mess, that my ex created and my credit score has INCREASED, by 50 points, this past year. I pay more than the minimum on my credit cards and use them sparingly. At present, I have absolutely NO derogatories on my credit report.

I went shopping, for a new insurance company and got a new carrier, at a $40 per month savings. At my age and with my driving record, I believe that I deserve some consideration from my insurance company.
post #13 of 24
Quote:
Originally Posted by GingersMom View Post
The thing about this that concerns me the MOST is that to get your FICO, the credit card companies have to put in a credit check, and they do this pretty much annually, and in some cases even quarterly.

Too many credit checks in a short period of time REDUCE your FICO.

On my credit reports I noticed that the credit checks from many of the credit card companies seem to come in waves: they all hit your reports at about the same time, which WILL and DOES drop your FICO, which then gives them the opportunity to increase your interest rates because your FICO has dropped.

Talk about a Catch-22 - they are CAUSING the FICO drops so that they can increase your rates?

Am I the only one that's caught this? How the heck can we change this practice? I noticed that none of the articles in the media have touched upon this point AT ALL.

This is what REALLY gets my goat about this whole issue. It is devious and unethical, IMO.
The best way to stop companies from hitting your FICO score is to put a security alert on your credit report. Any time anyone wants to look at your credit they will have to call you and ask your permission.

Also, there are two different types of credit inquiries. 1. A hard hit- this WILL affect your FICO. These are done by banks, utilities, and cable companies. 2. A soft hit- this will not. These are done by insurance companies, credit card solicitations, and employers.

You can also Opt-Out of the pre-screeen offers: 1-888-567-8688

To put a security alert on your credit report call Equifax: 1-800-685-1111, Experian: 1-888-397-3742, and TransUnion: 1-800-645-1938. These are all automated systems so you won't talk to anyone, but just follow the prompts and you'll get there. The alert only lasts for 90 days so you'll have to call four time a year.

(I told you I did this for a living)
post #14 of 24
Quote:
Originally Posted by lookingglass View Post
The best way to stop companies from hitting your FICO score is to put a security alert on your credit report. Any time anyone wants to look at your credit they will have to call you and ask your permission.

Also, there are two different types of credit inquiries. 1. A hard hit- this WILL affect your FICO. These are done by banks, utilities, and cable companies. 2. A soft hit- this will not. These are done by insurance companies, credit card solicitations, and employers.

You can also Opt-Out of the pre-screeen offers: 1-888-567-8688

To put a security alert on your credit report call Equifax: 1-800-685-1111, Experian: 1-888-397-3742, and TransUnion: 1-800-645-1938. These are all automated systems so you won't talk to anyone, but just follow the prompts and you'll get there. The alert only lasts for 90 days so you'll have to call four time a year.

(I told you I did this for a living)
I've considered that, but I don't mind getting prescreened offers, as they have helped me to get much lower rate cards so I could do balance transfers that have saved me $ over the long term.

And fortunately, I have a FICO that is high enough over 700 that I'm not feeling a hit on my personal rates. It's the general practice of this that I am opposed to and think it should be changed, even though I am not being negatively impacted by it.

That is really good advice for others whose FICOs are in worse shape than mine, though! Thanks!!
post #15 of 24
They can raise your credit card rates for any reason. Capital One raised mine just because they can. My credit score was 780 when they did it and I always pay my bills on time. They said it was because my interest rate hadn't gone up in the past 5 years. My interest rates were already 12% or higher! Needless to say, I switched credit card companies.
post #16 of 24
I know it! I wrote an article review on this topic.....I really hate credit cards.
post #17 of 24
Quote:
Originally Posted by ConsumerKitty View Post
They can raise your credit card rates for any reason. Capital One raised mine just because they can. My credit score was 780 when they did it and I always pay my bills on time. They said it was because my interest rate hadn't gone up in the past 5 years. My interest rates were already 12% or higher! Needless to say, I switched credit card companies.
That's very true. If the company isn't making enough money, and you aren't a "good customer*" they really can raise your rates for any reason.

*"good customer"- As defined by a credit card company a "good customer" is someone who carries a balance from one statement to the next. They make very little money off of someone who pays their bill in full every month, so in reality the people who get the majority of the interest rate changes are the ones that are being the MOST responsible about their money. I told you banks are greedy.
post #18 of 24
Anyone here actually read their credit card agreement? Boy, I'll tell ya, trying to read that mice-type really gives one a headache. Understanding it is something else. I think they count on that. Basically, the gist of it is they can do whatever they want, anytime they want. All they have to do is send you an ammendment. Pretty soon you've got a whole file full of ammendments. Usually you're given the opportunity to "opt out" of the changes, if you don't agree with them (but of course, you have to have read the new terms) but then they close the account when the card expires.

I'm a "deadbeat" customer. I always pay my full balance every month. I really couldn't care less about interest rates...I never pay them. Of courses, they're still making those merchant fees on me.

What gets me is when somebody has an "oops" with one card, and they ALL raise your rates.
post #19 of 24


I read all of mine... knocks on wood so far only one amendment and it was actually a good thing
post #20 of 24
Quote:
Originally Posted by ConsumerKitty View Post
They can raise your credit card rates for any reason. Capital One raised mine just because they can. My credit score was 780 when they did it and I always pay my bills on time. They said it was because my interest rate hadn't gone up in the past 5 years. My interest rates were already 12% or higher! Needless to say, I switched credit card companies.

12% is pretty good. The rates on our credit card balances are more in the 20-25% range and can actually even go higher.
post #21 of 24
Quote:
Originally Posted by coaster View Post

I'm a "deadbeat" customer. I always pay my full balance every month. I really couldn't care less about interest rates...I never pay them. Of courses, they're still making those merchant fees on me.
Same here. In fact, I usually keep a credit balance on my sole credit card, so the company has to pay me interest. It's higher than what our bank pays on our current/giro account, so it's worthwhile keeping a bit of a balance, and using the card like a debit card (which we also have; I believe hubby has only ever used his credit card once in the past 25 years, for car repairs. If he wants to buy something online, I have to order it and use my card or PayPal account).
post #22 of 24
Quote:
Originally Posted by jcat View Post
Same here. In fact, I usually keep a credit balance on my sole credit card, so the company has to pay me interest. It's higher than what our bank pays on our current/giro account, so it's worthwhile keeping a bit of a balance, and using the card like a debit card (which we also have; I believe hubby has only ever used his credit card once in the past 25 years, for car repairs. If he wants to buy something online, I have to order it and use my card or PayPal account).
If I carry a credit (which I've done), I get NO INTEREST. Our credit card companies don't do it. When I said we pay big interest, it's not uncommon for a credit card company here to charge 28% interest - I kid you not.
post #23 of 24
Quote:
Originally Posted by jcat View Post
Same here. In fact, I usually keep a credit balance on my sole credit card, so the company has to pay me interest. It's higher than what our bank pays on our current/giro account, so it's worthwhile keeping a bit of a balance, and using the card like a debit card (which we also have; I believe hubby has only ever used his credit card once in the past 25 years, for car repairs. If he wants to buy something online, I have to order it and use my card or PayPal account).
I'm super jealous of you, and your European banking laws!

Quote:
Originally Posted by Yosemite View Post
If I carry a credit (which I've done), I get NO INTEREST. Our credit card companies don't do it. When I said we pay big interest, it's not uncommon for a credit card company here to charge 28% interest - I kid you not.
No kidding. I wish my credit card company would give me money for keeping a positive balance with them.
post #24 of 24
Quote:
Originally Posted by Yosemite View Post
If I carry a credit (which I've done), I get NO INTEREST. Our credit card companies don't do it. When I said we pay big interest, it's not uncommon for a credit card company here to charge 28% interest - I kid you not.
Quote:
Originally Posted by lookingglass View Post
I'm super jealous of you, and your European banking laws!



No kidding. I wish my credit card company would give me money for keeping a positive balance with them.
That's outrageous. I have no idea what the interest rate is on my credit card right now, since I normally use it as a universally accepted debit card, but I get 3.5% monthly interest on any credit balances, and the last time the service fees were raised was in 1999.
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