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Ignoring credit changes can cost you

Before you toss that credit card change-of-terms notice into the trash without so much as a second glance, remember: Most changes benefit the credit card company, not the cardholder.

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Despite that rather obvious conclusion, studies show about two-thirds of credit cardholders who receive such notices are not even aware that changes have been made to their accounts. Woefully uninformed, they ignore the significance of many important new clauses, such as the expiration of low interest rates, universal default agreements, and inflated late fees.

The nonchalant attitude toward credit card changes is one of the many factors contributing to the explosion of consumer debt over the past 10 years, says Geri Detweiler, author of "The Ultimate Credit Handbook."

Consumer debt in the U.S. -- including credit cards and auto loans, but not mortgages -- hit a record high $1.98 trillion in October, according to the Federal Reserve. That's about $18,700 per household.

According to a recent survey by Auriemma Consulting Group, Westbury, N.Y., only one-third of 832 cardholders who received change-of-term notices even noticed the revisions and fewer still knew what to look for when they received the notifications.

"I'd say in the majority of cases, when you're getting a change in terms, the terms are seldom in the card holder's favor," says C. Scott Strumello, of ACG.

Card issuers are to blame, in part because they tend not to emphasize rate increases or new penalties in their notices to consumers.

"You're likely to get a nice envelope that says, in large bold print, 'SAVE with 3.9 percent.' But never a change-of-terms notice that says on the envelope, in large bold print, 'LATE FEE RAISED TO $35!'" cautions personal finances adviser Scott Bilker of DebtSmart.com and author of "Credit Card and Debt Management."

Credit card issuers for years have been aware of consumer laxity in reading credit-term changes on a regular basis, says Paul Richard, executive director of the San Diego-based Institute of Consumer Financial Education.

Even if changes are phrased in hard-to-follow legalese, Richard warns, ultimately it's the cardholder's job to master an understanding of the terms. "While there are times these documents might be difficult to follow, the bottom line is always: Let the buyer beware. These agreements are largely written to satisfy a state or federal law related to fair credit collections -- not to be reader-friendly."

Richard urges consumers to carefully examine every term-change notice, paying particular attention to four key areas:

  • Term: For what period is the interest rate being offered? Many low or no-interest rate cards expire in six to 12 months.
  • Rates: What is the rate of interest charged on carry-over balances? How often during a 30-day period are the finance charges calculated? What are the late-payment and over-the-limit fees? Do those fees increase if you do have a late payment or go over your credit limit once or twice?
  • Default: When does the issuer consider a cardholder to be in default? And is there a universal default clause that could jeopardize my credit score?
  • Remedies: How can I resolve an undesirable condition? If you consider a billing charge or late fee to be in error, it is up to you as a cardholder to dispute and reverse the charges or fees. If there are no avenues of recourse available, then you should not have this particular card.

In addition, Bilker advises, a careful reading of the card agreement may allow you to reject a limited number of terms without having to close your account.

Usually, if you refuse changes, you must stop using the card and repay your outstanding balance under the original terms. Continued use of the card constitutes your agreement with the changes.

"In other words, it's a negative offer," says Bilker. "If you don't reply, then you agree."

Once the changes are made, there's not much you can do about them. It's written into most agreements that the banks retain the right to make those changes if and when they please.

"Nevertheless, it can't hurt to call and ask. And heck, while you have them on the phone, see if they can lower your rate, waive a fee, or raise your limit," encourages Bilker, also the author of the recently published "Talk Your Way Out of Credit Card Debt."


Bankrate.com's corrections policy
-- Posted: Jan. 30, 2004
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