"They tend to be smaller issuers, like Simmons Bank in Arkansas or credit unions," he says. "Check your cardholder agreement and any change in terms carefully. If you can't find anything, call your issuer."
This paragraph from the terms of the Citi Professional Cash Card illustrates how credit terms can change because of forces within and outside of your control.
Rates, fees, and terms may change: We have the right to change the rates, fees, and terms at any time, for any reason, in accordance with the card member agreement and applicable law. These reasons may be based on information in your credit report, such as your failure to make payments to another creditor when due, amounts owed to other creditors, the number of credit accounts outstanding, or the number of credit inquiries. These reasons may also include competitive or market-related factors. If we make a change for any of these reasons, you will receive advance notice and a right to opt out in accordance with applicable law.
As indicated, if your rate is increased, you may be able to opt out. But there's a catch.
"You may get a notice that allows you to opt out of the change and pay off the card at the current terms. If you do, you must respond quickly to that notice," Detweiler says. "And you must close the account."
Universal default
Another way for credit card companies to squeeze money from their customers is through the universal default clause. It stipulates that credit card issuers can raise interest rates if your credit score changes, if you take on too much debt or if you pay another creditor late.Understanding universal default is even more important now, in light of the credit crunch.
"There is a lot of confusion about universal default," says Curtis Arnold, founder of Cardratings.com and author of "How You Can Profit From Credit Cards."
"If a credit issuer cuts my credit line and my credit score drops -- which is likely -- what happens is a domino effect. My other credit card companies start jacking my rates up because of this one action by a credit card company," he says.
Some companies have publicly stated that they do not engage in the universal default practice, but they may still raise interest rates and fees "due to market conditions" (see "Rates that go up for no reason").
In the current climate especially, anyone who is considering getting a credit card should find out about the issuer's universal default policy.
How to avoid: If you have a card with a universal default clause, keep credit card balances low and pay everything on time. If you can manage to not carry a balance, congratulations, you win.