 Card company raises rate over debt ratio
|  Dear
Debt Adviser,
I recently received a letter from a creditor stating
that they would be raising the interest rate on their credit card, effective the
next month. As I have not been late paying them or any other debt, I thought this
was unusual. I asked why, when I called to opt out. They stated it was because
I had a "high balance" on another card. Is that legal? I found it interesting
that their decision was made on the same day that I applied for a home equity
loan to pay off the debt. Could the two be related?
-- Mary K
Dear Mary K,
Congratulations for reading your mail from your creditor
rather than tossing it in the trash and for deciding to do something about it!
If you had not read the letter, you would have been unable to opt
out of the increased interest rate on your credit card and you would only
have yourself to blame. Keep in mind that when you opt out, you will be opting out of any further use of that card. Any further use signals your acceptance of the higher rates. In most cases, the creditor will close your account at
the card's expiration date when you opt out; however, not having use of the account
is usually worth it to stay at the lower interest rate. There are plenty of other cards.
To
answer your first question, regarding whether or not is it legal for the creditor
to raise your rate, yes, most likely it is legal. Your card agreement probably
includes a universal
default clause, which allows the creditor to raise your interest rate for
various reasons, other than a missed payment, if the creditor believes you have
become an increased credit risk. Not all card agreements contain
this clause and some of the big ones have dropped it. I recently received a notice,
which I read, too, from Citi saying they were ending
the practice of universal default. I encourage all of my readers who experience
this treatment to be sure to tell the card issuer that other card issuers don't
include universal default and they shouldn't either if they want your business
in the future. Your "high balance" on another card
may have pushed your debt-to-income
ratio too high for the creditor's comfort, so the creditor raised your
interest rate. I'm glad to hear that you opted out of the interest rate change
and will remain at the lower interest rate until your balance is paid. Your
next question is a little trickier than the first. Let me answer by telling you
what I do know about how creditors monitor credit report activity.
 |
Creditors are looking at: | |
|
| • | New
credit accounts and the amount of credit available | | • | Payment
history (Late payments on any account) | | • | Substantial
increases in credit balances | |
The
creditor increasing your interest rate and the fact that you applied for a home
equity loan may only be coincidence. These guys may be quicker to raise a rate
than a jack rabbit on a date, but the same day? That seems just too fast. It may
have been in the works already. You have already opted out of the interest rate
change for this creditor, but if any of your other creditors follow suit, you
could use the home equity loan as leverage to get them to keep the interest rate
the same or even lower it. The creditor wants to continue to earn money from your
account, so they may
be willing to work with you to avoid your using the equity loan to pay
off your balance. Speaking of your home equity
loan, I hope you have done your homework and know that you will be able to make
the payments on the loan and that you have not put your home at jeopardy just
to save a few interest points on an unsecured debt. Good luck!
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