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Credit card companies look to
raise your rates by spying on your credit

The importance of keeping credit pure Mind those bills. All of them. Credit card companies are watching.

Some of the biggest credit card companies have started aggressively penalizing customers who show signs of trouble anywhere in their credit reports. If a company likes what it sees in a customer's credit report, a cardholder might get rewarded with a thicker credit line. But one black mark from any creditor could trigger a rate hike.

So if you fall behind on your Sears bill, the interest rate on your Citibank credit card could shoot up.

"Why should that matter?" asks Howard Strong, author of What Every Credit Card User Needs to Know. "It doesn't harm them in any way. It's ridiculous. It's just a way to knock up rates."

"We're looking at risk factors. If we see someone become delinquent with another creditor, that may be an indicator that they are about to become delinquent with us," says Maria Mendler, a spokeswoman for Citibank. "We may need to adjust our credit decisions accordingly."

Who's watching
In the spring of 1999, AT&T Universal Card informed cardholders that the card's interest rate may jump to 23.9 percent if a "payment is not received by us or any other creditor within 30 days of the due date."

Citibank, which bought the AT&T Universal Card in 1998, started a similar policy in late 1998.

Around the same time, Capital One notified its customers that they reserve the right to change the terms of the account if it's not in good standing "or if you do not maintain good standing with other credit accounts and excellent performance with credit bureaus."

"We don't want our good customers subsidizing our bad customers or those that are more challenged," says Diana Don, a spokeswoman for Capital One. "It's not just one bad move. It's really looking at a customer's portfolio as a whole and deciding what product is right for them at the time. Each one is priced to their own risk and what's going on at the time."

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Some card companies review customers' credit reports more often than other companies.

"Some may do it monthly. Some may do it quarterly. Some may do it yearly," says Martie Edmunds Zakas, corporate vice president of communications for Equifax, one of the three major credit bureaus. "Some never do it."

All Capital One card customers are subject to periodic credit checks.

"Of course, we may look at rule-breakers more frequently," Don says. "If people are constantly late or going over the limit, we don't want to give them that much leverage to overextend themselves."

Although these pricing policies are spelled out in cardholder agreements and billing inserts, most people don't know about them. AT&T Universal Card cardholders, for example, had to wade through six pages of tiny print before they came across the phrase requiring them to maintain credit purity.

Customers blindsided
Credit counselors say many people feel blindsided by the card companies' rate hikes -- especially if they haven't been late with any payments.

"I'm hearing about it more and more," says Hal Prather, a branch manager at Consumer Credit Counseling Service in Norcross, Ga. "It's apparent to me that most people don't read the inserts. I think most people learn about it the hard way."

Mike Kidwell, vice president of the nonprofit debt crisis center Myvesta, adds, "We get calls and e-mails all the time. 'I've never been late on this card. Why is my rate going up?' Or 'I had trouble with one account and my rates went up on another card?'

"You've got to be aware of limits on credit cards. If other creditors are seeing balances going up and all of a sudden you're late, you're considered a greater risk. Not just with the one creditor that you paid late but with all your creditors."

How to protect yourself
To help protect yourself against a credit card rate hike:

  • Keep a list of credit card accounts, due dates, balances and credit limits.
  • If a credit card due date falls at a time of the month when cash is tight, call the issuer and have the due date changed.
  • Get in the habit of paying credit bills as soon as they arrive.
  • Monitor card accounts carefully.
  • Check your credit report at least once a year and correct any errors.

Getting a credit report will also allow you to see how often creditors are checking up on you. Fortunately, increased snooping from a current creditor won't hurt your creditworthiness. Checks by your existing creditors are considered "internal inquiries."

An "external inquiry" is triggered when a consumer applies for a new credit card or loan, or gives permission to a potential employer to make a credit check. Frequent external inquiries may be viewed as a sign of iffy credit.

"Nobody but you sees internal inquiries on your credit report," says Anissa Yates, manager for corporate communications for Experian, another of the major credit bureaus. "Businesses are not given access to internal inquiry information on a credit report. It's physically impossible in our system for them to get our information."

 

-- Updated: Aug. 21, 2002

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