|Ignoring credit changes can cost
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.
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
"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
- 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
- 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
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
"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."