credit cards

Credit card damage control

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  • Issuers do not have to notify you of rate changes.
  • Requesting a lower rate may backfire because of your credit report.
  • Credit cards used minimally may invite an adverse action.

Check your credit card statements. Has anything changed? Consider yourself lucky if you have yet to experience a negative change, or adverse action, to your account. According to a January 2009 survey from Atlanta-based Synergistics Research Corp., 21 percent of consumers reported receiving an interest rate hike, 17 percent reported an increase in minimum payment due and 9 percent had a decrease in credit limit.

The results merely reflect the number of folks who realized their terms had been altered. Because consumers can mistake notices for junk mail, cardholders may only learn about account changes the hard way -- after they take effect. Or, if consumers pay off their balance without glancing at their terms, they might overlook adverse actions. Welcome to the bizarro world of credit cards.

Issuers as a whole are reducing the risk in their credit card portfolios. They face ugly economic pressures -- rising unemployment and charge-offs, increased lending costs and profit-cutting regulations that take effect in July 2010. Already, the average charge-off rate -- debt deemed uncollectable by the bank -- hit 7.1 percent in January, up from 4.6 percent a year ago, according to Bloomberg.

In these uncertain times, a consumer's best defense is knowledge. Here are some tips to prepare for and deal with adverse changes to your credit card accounts.

6 changes to look for
  1. No notification necessary for credit limit changes
  2. You can no longer buy all three FICO scores
  3. Requesting a lower rate may backfire
  4. Card issuers may punish for minimal card usage
  5. Banks want to help struggling cardholders
  6. Opting out is not always the best option

1. No notification necessary for credit limit changes

About 35 percent of banks reported slashing credit limits for existing accounts, according to a January 2009 survey of senior loan officers. There's no guarantee the same percentage notified their cardholders of the change to their credit line.

Regulation Z, which implements the federal Truth in Lending Act, doesn't require national banks, such as Bank of America and Capital One, to give advance notice of a change in the credit limit. They don't even have to notify you if the limit is lowered to or below the balance as the consumer pays it down, a practice called "chasing down the balance" or "balance chasing."

Several Bankrate readers have complained in the last couple of weeks of balance chasing on their account. Each was surprised by the sharp cut to their credit limit. Meshella J. says, "I recently paid my personal card down by approx. $3,500. They immediately lowered my limit to $300 below what I owed. I just happened to go in and looked at my online account and saw that. I paid them the additional $300, so I would not be over my limit when the statement was cut."

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Product Rate Change Last week
Balance Transfer Cards 15.93%  0.05 15.88%
Cash Back Cards 16.48%  0.05 16.43%
Low Interest Cards 11.10%  0.07 11.03%
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