Because no one really cares about credit cards until something horrible happens, you’ve probably missed out on the growing discussion posted on this blog last year, aptly titled Bank of America Raises Interest Rates. Beginning this weekend, I started receiving a slew of comments from angry consumers who had low fixed rates ripped from underneath them. Today, the mainstream media caught up, with an article on Bank of America’s credit card increases appearing in the Wall Street Journal.
According to the Journal, Bank of America is raising rates on consumers with interest rates of less than 10% or forcing them to close their accounts. The degree of increases varies, but can be quite substantial. A visitor of this website, posting as Pissed at BOA, told us that Bank of America raised his rate from a fixed 7.9% rate to an astronomical 23.65%. When he contacted Bank of America, he was told the reason behind his rate increase was, “not a reflect(ion) of you or your credit history with us or others and it is due to the current economic conditions.”
The latest round of interest rate increases from Bank of America should give everyone with credit card debt, not just Bank of America cardholders, reason for concern. However, as I’ve told many rate increase victims, having a surprise rate increase can work to your advantage, as long as the proper steps are taken.
What you should do when your interest rate is increased
1.) Transfer your balance to a 0% credit card: Many people with double digit interest rates never even consider balance transfers. However, 0% balance transfers can work miracles for consumers by saving them hundreds of dollars in yearly interest. This provides an opportunity to reduce debt substantially without compounding interest expenses. On the average, a person with a 14% interest rate can save over $100 a year for every $1,000 transferred to a 0% credit card. For a person with $5,000 in debt, that can translate into over $500 in interest savings during one year. If you aren’t using balance transfer credit cards to pay down credit card debt, you should be.
Click here to review balance transfer offers on this site and apply online
2.) If you can get approved for a 0% balance transfer, keep your old credit card account open: Closing credit card accounts can have huge, adverse affects on your credit score for a variety of reasons. First, closing a credit card account without opening a new one reduces your available credit. This, in turn, increases your credit utilization ratio. Credit utilization ratio’s account for 30% of your credit score. Thus, if you had $2,000 in debt and $5,000 in total available credit, your utilization rate would be 40%. However, if your available credit is cut to $3000, you’re now using close to 70% of your available credit. This can lower a person’s credit score by dozens of points, thrusting people with good or excellent credit into the average credit category.
A second credit score problem caused by closing accounts is the shortening of your credit history. If, for example, the credit card you close had been open for years, closing it will reduce your active credit history, another issue that can lower your credit score.
Click here to view free credit score analysis tools
3.) Pay down as much credit card debt as possible: While easier said than done, paying down credit card debt is truly the only way to protect yourself against predatory credit card lenders. While today’s spotlight is on the Bank of America interest rate increases, just about every major credit card issuer has been raising interest rates lately. Visitors have been posting about sudden rate changes from Chase, Capital One, HSBC, and American Express for months now on this blog (see credit card complaints here). Call me pessimistic, but I think the worst has yet to come. As consumers, the best defense is to limit your exposure to the whims of our banks. And the only way to do that is to lower your credit card debt.
Final Thoughts
Having your interest rate increased can be a nightmare, but it can also put you on the path to getting out of credit card debt if proper actions are taken. If Bank of America raised your interest rate, turn your anger into action. Do a 0% balance transfer and start paying your debt down immediately. Don’t be a passive victim; be a smart consumer. And, as our website implies, do a smart balance transfer.
To kick start the process of getting out debt, visit the balance transfer credit card section of this website where you can compare current 0% balance transfer offers and apply online.
If you’ve been the victim of a Bank of America interest rate increase (or any bank’s rate increase), please share your experience by leaving a comment. Your postings are anonymous and help us keep the public informed.
You May Be Interested In
- 2 Ways to Minimize Credit Card Interest Expenses
- Tips to Help Choose Credit Cards with 0% Rates on Purchases
- December 2011 – 0% APR Balance Transfer Credit Card Report
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