Understanding how your credit card company assesses finance charges and penalties can save you hundreds of dollars. Bankrate expert Dr. Don Taylor answers some of the more frequently asked questions on these charges.
My credit card interest rate was jacked up to 29.99 percent when I was late paying the bill. What is the maximum allowable APR on credit cards?
It's a popular misconception that state usury laws protect borrowers from high interest rates on their credit card debt.
Credit card issuers scored a sweeping victory in 1978 when the Supreme Court ruled in Marquette vs. First Omaha Services that it was legal for nationally-chartered banks to export the more costly terms of their credit cards to states where the laws regarding interest rates restricted such practices. The credit card issuer need only follow the law of the state in which its credit card operations are located, not the laws of the cardholder's state of residency.
After this Supreme Court ruling, credit card issuers migrated to states with permissive credit policies like South Dakota and Delaware.
That's why it's so important to make timely payments, even if it is just the required minimum payment. Besides avoiding late charges, you keep your payment history intact and avoid giving your credit card company an excuse to raise your interest rate.
By the way, many credit card agreements are now written so the company can raise your rate if you are late on any of your bills, not just their credit card.
Get a copy of your credit report and your credit score and see for yourself how bad things really are. You can order your free credit report online and get the results in minutes. Correct any mistakes on your report, and start the rebuilding process. Although late payments stay on your credit report for seven years, the negative effect of these items lessens with time as you rebuild your credit history.
Getting a lower-rate cardYou need to get out from under this 30-percent albatross. After reviewing your credit report for mistakes and making any needed corrections, you're ready to look for replacement credit.
First, talk with your current lender and ask them to reduce your rate. Make it clear that you plan to vote with your feet and find a new lender if they aren't willing to reduce your rate. It's not likely to work, but it's worth asking. If they say no, then it's time to do some shopping.
If you belong to a credit union, or are eligible to join a credit union, talk to them about transferring this balance to their credit card. Or look at taking out a personal loan for the amount needed to pay off the card.
If you have equity in your home, consider taking out a home equity loan. Just don't apply for debt all over town. Multiple credit applications make you look desperate, and lenders don't like to lend to desperate people.
If none of this works, make every effort to pay down as much as you can each month on this card until you pay it off.