Unfortunately, neither of these options is ideal for just about anyone.  Closing an account can hurt one’s credit score, while accepting a higher rate can be extremely costly.  If, for example, you owe $5,000 on a credit card with a low rate of 10%.  You’ll pay around $500 a year in interest.  A rate increase to 15% will cost you $250 a year.  A rate increase to 20% will cost you $500 more a year.  And if that rate increases to 29.99% as it has for many people this year, you’re annual credit card interest expense skyrockets by $1000.

Clearly, paying an extra $250 to $1,000 a year is not what anybody needs these days.  However, many are hesitant to close accounts because of the possible damage to their credit scores.  Yes, this is a reason for concern if you are buying a home soon, but if not, you should be more concerned with saving money than a few points on your credit score which will return in a few months if you manage your credit wisely.

Fortunately, there is a third option that is not mentioned in credit card opt out notices:  0% balance transfers.  If you are unfamiliar with 0% balance transfers, the process involves applying for a new credit card that offers a promotional rate and moving your debt from the old credit card to a new one that offers a promotional rate.  If you can get approved for one of these offers, you can transfer your high interest balance from your old card, keep it open (which will help your credit score) and pay less interest on the debt you already have thanks to the 0% rate.  (You also get to stop giving your cash away to the company that raised your rate.)

Electing to keep your credit card open and using a balance transfer instead of opting out is an option your credit card company probably doesn’t want you to take.  However, this strategy can save you hundreds of dollars in interest, help you get out of credit card debt faster and limit the damage to your credit score.

For more information on 0% APR balance transfer credit cards, please use the links on your left to compare current offers and apply online.

In 2009, the worst credit card complaints have come from people who literally did nothing to deserve ludicrous interest rate increases, absurd payment increases, and drastic credit limit decreases.  So strap yourself down and take a moment to absorb some of the most horrendous credit card practices in the history of modern finance.

Credit Card Complaint 1:  Anytime, Any Reason Interest Rate Increase:

“My HSBC direct rewards card advertised a 16% interest on cash advances. I had the card three years, and never used this. Finally, last month I took a cash advance, my first, and they raised my cash advance interest rate to 58%! When I sent an e-mail asking if this was an error, I was told that my agreement stated, (in so many words), that they could raise my interest any amount at any time for any reason, and that was that. I have never been late, never missed a payment, and almost always paid more than the amount owed. Needless to say, I will be transferring my balance to another card, and destroying this one.”  -Cheryl

Comments:  This may be the highest interest rate ever charged.  Ever.  And this includes loan sharks.

Credit Card Complaint 2:  Interest Rate Doubling, Credit Line Dwindling:

“I have had a Direct Merchants Bank MC for over 7 years and currently carry a balance of less than $1000. Effective in January the interest rate doubled to 29%. The card limit was $4400 but I just rcvd a letter from HSBC who took over the account 2 yrs ago and it states they are reducing my credit limit to $1110. The letter reads “We recently completed a loss mitigation review on our Direct Merchants Bank MC accounts. As a result of the class of accounts into which your account fell, the credit limit has been reduced to $1110.” I have never made a late payment and pay more than the minimum. This is unfair and a credit reduction of over $3000 will certainly affect my credit score! What rights do I have?? None!” – Chris

Comments:  Double the interest rate and cut the credit limit in half.  Oh, we really appreciate your business!

Credit Card Complaint 3:  We Know Times are Tough, So Give Us All Your Money:

“I am one of the Chase CC customers that is affected by their 5% minimum payment increase. I have been with them for more than 5 years and have not made any single late payment. Their practice is outrageous! It is useless to contact them. I have called and asked nicely about alternatives, and was told nothing can be done, except I have 30 days to look for another institution to transfer my account. Two years ago Chase called me to offer this fixed rate 5.99% option to combine my bilsl in one place. I carry pretty large balance and my current payment is $350, but it will soon be $875.” – Chris

Comments:  A $350 monthly payment can be a big strain on most people.  So, during a time of financial stress, we’re gonna increase that payment to $875.  Hope this isn’t too big of an inconvenience.  You should be able to find a healthy, affordable way to feed yourself off the dollar menu-they have salads now!

Final Thoughts:  Choosing three credit card complaints out of the hundreds received by Smart Balance Transfers wasn’t particularly easy.  In fact, there are so many headline worthy complaints, we’ll need to post a lot more than three to paint an accurate picture of just how poorly credit card companies have been treating customers.

In the past, when one credit card company wronged a consumer, it was easy to transfer credit card balances to a different company and enjoy a 0% interest rate.  Today, getting approved for low rate and 0% credit cards is becoming increasingly difficult.  Consequently, many consumers are stuck with credit card companies that seem to show no regard for their customers.  And, despite new credit card laws, things continue to get worse.

If you have a moment and a credit card complaint, feel free to share it with us anonymously.  Even better, if you found a solution to a credit card problem that worked, your comments could help out the millions of Americans who are now paying a heavy price for the mistakes our banks made during the past five years.

During the past half decade, credit card companies were engaged in a battle to win new customers.  This was great for consumers, who were offered long term 0% interest rates and often charged little to no balance transfer fees.  As the credit crunch intensified last summer, companies began eliminating no fee balance transfer deals.  By fall, companies began to remove the limit on balance transfer fees.  Prior to the fall, most companies charged a maximum fee of $75 per transaction.  Anyone transferring less than $2,500 paid 3%, while those transferring more simply paid $75. 

Before the ceiling was lifted on balance transfer fees, a person transferring $10,000 would have paid a maximum fee of $75.  After the fee cap was removed, the cost skyrocketed to $300.  With 4% balance transfer fees, the cost to transfer $10,000 is now $400, a whopping 533% increase in less than one year.

Nevertheless, balance transfer fees have always been more of a nuisance than a deterrent.  Paying 3% or even 4% is a pittance compared to paying 15% or 19%.  Unfortunately, the next element of the balance transfer house of cards to fall will likely be the 0% APR.  Already, a number of companies have reduced the duration of 0% rates from 1 year to as little as 6 months.  Additionally, the major companies are requiring much higher credit scores to qualify for these deals.

Ultimately, the next few months will prove very telling.  Based on the trends that have developed in the past year, it is likely that balance transfer fees will rise across the board and 0% rates will be reduced to six month periods or replaced with 2.9% rates or higher.

Unfortunately, at a time when consumers could benefit most from 0% rates (and banks can borrow money for close to 0%), 0% balance transfers are quickly disappearing.  Thus, as I’ve warned many times before, lock in a 0% interest rate while you still can.  And do it with a good credit card company that offers a low long term APR after your 0% period expires.

The problem with this bill and, more precisely, the threat of this bill is that it threatened to fundamentally alter a business that, without government interference, was fundamentally troubled.  Before the threat of this legislation existed, credit card companies were not raising interest rates across the board on consumers with good credit.  Nor were they hitting good customers who simply missed a single payment with default rates.  Essentially, all of the horrible things credit card companies have done in the past few months seem to be tied to the fact that they were scrambling before the new laws took effect.

Of course, the new laws won’t help all the people who have been victimized by these less than judicious rate increases.  Nor will it help people who are hit with rate increases during the next nine months.  Furthermore, it will hurt people with good credit who will now be subsidizing the mistakes of irresponsible lenders and perhaps even more irresponsible lenders.

Here are just a few ways intelligent credit card users will be hurt:

1. 0% balance transfers:  A lot of people have bailed themselves out of credit card debt hell with 0% rates.  Unfortunately, the people who really need them now will have a hard time getting them.  And in the next few months, its likely most offers for balance transfers will only last 6 months, come with higher balance transfer fees, and perhaps the zero in 0% balance transfers will be replaced with a 3% of 5%.  So all the millions of people who suffered random rate increases will be stuck with 16% or 22% rates, since no credit card company will be interested in loaning them money at 0% rates.
2. Credit card rewards:  Smart consumers can easily use credit cards profitably with rewards credit cards.  Not for long.  These programs, already cutback from the more generous days of yore will be much less rewarding or carry substantially higher fees that will erode the rewards power.
3. Grace periods:  This may be the real killer.  People who pay their credit cards on time and in full every month pay no interest.  However, eliminating grace periods or charging annual fees on cards with grace periods may be in the cards.  If this occurs, the second a person charges something, the interest starts running up.  This is yet another tax on intelligent credit card users.

So, once again, laws intended to help consumers during the credit crunch will do the exact opposite.  In fact, the only people who win here are the Senators who can say they stood up to the big banks.  Unfortunately, by doing so, they may have delivered a fatal blow to credit card industry as we know it.  And, despite the fact that it is easy to hate credit card companies, they have provided a valuable service to many.  Many of us will realize how valuable that service was when we can no longer get approved for credit cards, when low interest rates start at 17% and when 0% balance transfers are discussed like 5 mile walks to school (uphill, both ways).

Personally, I’ve always been on the side of consumers.  And I still am.  Unfortunately, what was best for the credit card companies was also best for 70% of consumers.  Thus, I think the new credit card bill is [expletive deleted].

In a lot of instances, you may find a discussion or article on Smart Balance Transfers that answers your credit card question.  However, if you can’t find the information you need, please feel free to post your credit card question here.  All information posted on the balance transfers blog is anonymous and the only time your email may be used is if I send you a personal response. 

This is a tremendously difficult time for many of us and credit card problems are the last thing we need.  So, while I can’t get your credit card company to lower your interest rate or turn back the clock and remind you to pay last month’s credit card bill on time, I’ll try my best to give you clarity on whatever credit card questions you have.

Thanks in advance to those of you who choose to share.  And thanks for helping me clear my conscience by providing whatever credit card help I can.

Over time this site may become a useful tool.  In the meantime, however, you may want to review balance transfer credit card information on our site if the helpwithmybank doesn’t resolve your questions.

Since 2004, our company has been providing consumers with a platform to compare credit card offers from multiple credit card issuers.  For much of that time, we were able to provide consumers with over 100 offers from every major credit card issuer to choose from.  However, as the credit crunch intensified, many of the largest banks not only stopped promoting their offers on our site, but also requested we remove information and links to their offers.

Because our company can’t display these offers, our visitors are unable to easily compare offers from multiple companies.  Consequently, the credit card companies that continue to promote their credit cards on the internet have less competition, and thus less incentive to offer consumers quality deals.

If President Obama can get more banks to promote their credit cards on online comparison sites, consumers will benefit tremendously.  Not only will they have more options available to them, but the need to be competitive may help keep 0% rates alive, interest rates lower, and stop the rapid increase in credit card fees.

Let’s hope Obama’s meeting with the credit card companies is not like the 90% of meetings that result in nothing.  Let’s hope Obama helps reverse the changes that have made it more difficult for consumers to get good credit card deals when they need them most.

For more information on President Obama’s postion on credit cards, please see this this page of www.barackobama.com.

Unfortunately, this meeting is slated to take place about 5 months after millions of consumers have been blindsided by massive interest rate increases and severe credit limit cuts.  In all likelihood, nothing will be done to help those who have already been victims of credit card abuse.  (For firsthand accounts, please see credit card complaints here.)

What, if anything, could come of this meeting?  Ideally, the Obama administration can put a stop to the seemingly random interest rate increases that have led to the doubling or tripling of interest rates for many consumers.  However, this scenario seems unlikely, as there is nothing illegal about these abusive practices.

A second outcome, which is also unlikely, would be increased lending and 0% refinancing options.  However, this too seems unlikely, as banks continue to limit access to 0% introductory rates and increase balance transfer fees.

In all likelihood, the only outcome of this meeting will be some newspaper headlines that make the administration appear to be cracking down on credit card abuses.  Unfortunately, headlines aren’t going to pay the extra 15% many consumers are paying on their credit card debt.  And, in all likelihood, unless the government provides credit card companies with the money they need to make loans, it is equally unlikely that consumers will benefit from any increase in credit availability.

So, on April 24th, you may read a headline such as, “Obama Administration Pushes Credit Card Lenders to End Abusive Practices,” and come home to find a letter from your credit card company informing you that your interest rate will be doubling next month.  As we’ve learned over and over again during this crisis (and our lives for that matter), meetings don’t always produce results.  And this meeting may be nothing more than a public relations move.

Recently, however, we’ve been hearing from consumers with good credit and low credit limit utilization who’ve had their limits cut, oftentimes dramatically.  A common tactic among credit card companies has been to offer consumers ultimatums:  close your account or accept a doubling (or tripling) of your interest rate.  Recently, however, a much more insidious trend has taken hold.

The new trend, which we warned consumers about a few weeks ago, is to cut credit limits to within a few hundred dollars of current balances.  This tactic is the most vulgar and abusive we’ve seen.  In a nutshell, it is a disgusting attempt by credit card companies to charge fees and raise interest rates.  Here’s a scenario that is unfortunately becoming commonplace:

A consumer, we’ll call her Fran, has a $3,000 balance on a credit card with a $10,000 limit and a 720 credit score.  On Monday, Fran gets a letter from her credit card company informing her that her credit limit has been cut to $3,100.  Fran fortunately has a few hundred dollars of available cash, so she puts a check in the mail for $500.  However, Fran has her cell phone bill set to auto-pay, and before that check arrives, her credit card is charged $101, putting her over her credit limit.  Going over the limit leads to Fran being charged a $30 late fee. 

And that’s just the beginning.  Because the terms and conditions of just about every credit card allows the company to raise her interest rate if she defaults (doesn’t pay on time) or goes over the limit, Fran’s interest rate is raised from 12% to 25.99%.

Now, Fran has a monstrous interest rate and no credit available.  And this is just the beginning.  In a few weeks, her credit card company will report to the credit bureaus that she is using 75% of her available credit, as opposed to 30%.  This will cause her credit score to decrease substantially, thus making it difficult for her to refinance her debt with a 0% balance transfer.  If she doesn’t pay off her balance immediately, she will spend over $400 more in interest in just one year at the higher rate.

Fortunately, there is a solution for the Fran’s of the world.  However, it requires fast and decisive action.  Here’s how you can turn a credit card nightmare into a manageable situation:

1. Do a 0% Balance Transfer Immediately:  If you wait until your credit score is updated to reflect your lower credit limit and higher credit utilization, there is a very good chance you may not be approved for a balance transfer credit card.  However, if you act immediately, your credit score will remain where it is, vastly improving your chances of getting approved.  This will not only save you hundreds of dollars in interest, but it will also help your credit score, as you will have more credit available.
2. Do Not Close Your Credit Card Account Unless Forced:  The ultimatums credit card companies are giving consumers are truly sickening.  However, if your credit card company does not threaten to raise your interest rate, keep your credit card open, as closing a credit card account can have a very negative impact on your credit score.
3. Pay Down Your Credit Card Debt:  Although easier said than done, paying down at least a portion of your debt can help you protect your credit score.  For example, if Fran were to trim her credit card debt from $3000 to $1400, her credit utilization would be under 50%.  This is much better than 90%.

Ultimately, upstanding, honest citizens are paying for the mistakes made by irresponsible banks and irresponsible consumers.  Most of the people suffering through credit limit cuts never took out sub-prime mortgages they couldn’t afford or lied on loan applications.  Unfortunately, the risk assessment tools used by credit card companies don’t seem to know the difference between honest, hard working Americans and our dishonest, liar-loan accepting brethren.  The best we can do is utilize the resources available to us to lessen the fallout of other people’s mistakes.

If you’ve fallen victim to a recent credit limit cut or interest rate increase, you can take action by getting a new credit card with a 0% interest rate on balance transfers.  For more information or to apply online, please see the balance transfer offers section of Smart Balance Transfers, where you can compare deals and apply online for approval.

If you want see how your credit score has been effected by a recent credit limit cut, you can find a number of free credit report offers in the appropriate section of our website as well.

Overview

When a credit card company cuts your credit limit, this can have a huge, negative impact on your credit score.  The reason lower credit limits can rapidly erode your credit score lay in the heavy weighting given to the utilization of available balances.  For example, a person with $900  in credit card debt and a credit limit of $10,000 gets a credit score boost because they are using less than 10% of their available revolving credit.  Even at 30%, your credit score isn’t negatively impacted.  However, when a credit card company swoops in and cuts your limit to $1100, you are now using nearly 90% of your available credit.  In other words, you’d be maxed out.

Things Are Getting Worse

The first people to get stung by credit limit reductions were those on the border of good to average credit.  These consumers started getting hit soon after the collapse of Lehman Brothers in the fall of 2008.  Now, however, we’re getting emails from customers who have good credit, always pay on time, and aren’t even close to maxed out.  And the trend is getting worse.

A www.bloomberg.com article penned by Alexis Leondis contains this startling observation;

“About 45 percent of U.S. banks reduced credit limits for new or existing credit-card customers in the fourth quarter of 2008, according to a Federal Reserve January survey of senior loan officers. Financial institutions may slash $2 trillion in credit- card lines in the next 18 months, Meredith Whitney, a former Oppenheimer & Co. analyst, wrote in a Nov. 30 report. “

Based on a number of email and blog comments we’ve received, the timeline for these credit limit cuts has probably decreased from 18 months to today.

What You Can Do When Your Credit Limit is Decreased

1. Act Quickly:  When you learn of a credit limit cut, especially one that puts you at or near your credit limit, you need to move very quickly or you risk falling prey to numerous traps.  Here’s one example:  Let’s say your limit gets cut to $100 more than your current balance, and you have an auto-payment set up for $101.  When that goes through, you’ll not only go over your limit (and get hit with a fee) but also, you will have given the credit card company a legal and legitimate reason to raise your interest rate. 

If you fall into this position, make a payment to your credit card online or by phone immediately and cancel any auto pays you have in place.

2.  Apply for a New Credit Card:  It takes a few weeks for changes by your credit card to hit your credit report.  If you apply for a new credit card immediately, you may be able to get approved before your credit score decreases.  This will not only give you access to credit, but it could also help your credit score, as you will now have more credit available to you (For information or to apply for a new credit card, you can compare offers in 0% APR credit card section of this website.)

3. Pay Down Your Credit Card Debt:  While obviously easier said than done, paying down you debt will help limit the damage done to your credit score.  However, there are a few things to be careful of.  For example, if you think you will need this money in the near term, you’re better off holding on to it and worrying about your credit score later. 

4.  Monitor Your Credit Closely:  If you’ve recently been clobbered with a credit limit decrease or another adverse credit event, you may want to check out your credit score.  There are a number of websites that offer free credit monitoring trials for 30 days that provide you with access to all three of your credit reports and scores.  These sites also have tools that enable you to estimate how certain events, such as getting a new credit card, will change your credit score.

Final Words

Unfortunately, all consumers are now at the mercy of our desperate banks.  In the short term, its always best to plan for the worse.  Today, that means staying on top of your credit card accounts, paying down debt, and vigilantly defending your credit score.  Getting your credit limit cut in times like these is the last thing most of us need.  However, smart, decisive action can help you avert the worse.

-Jeffrey Weber

To review credit card offers and free credit reports, please visit the main section of Smart Balance Transfers where you can compare offers and apply online. 

In a move the American Bankers Association called, “unprecedented,” Federal regulators passed new credit card rules that will help struggling consumers in 2010.  To be more precise, July of 2010.  In other words, 18 months from now.  Stated differently, in the not too distant future.

Local news anchors and financial writers have been praising these new rules that will help consumers against the evil credit card companies.  They don’t seem to be stressing the fact that this help will not arrive until 2010.  Have I mentioned that yet?  For the next 18 months, everything stays the same.  Credit card companies will continue to raise interest rates and cut credit limits.  Credit availability will continue to decline.  And your credit card company will continue to make a fortune off your debts.

However, if this was June of 2010, relief would be on the way.  It is not.  It is December of 2008 and while consumers battle through unprecedented economic turmoil, nothing will be done to rein in the practices of your friendly credit card company.

Fortunately, the new credit card rules will take effect in a little under 470 days (and counting) and then things may start to improve.  For some people.  The rules that will come into effect 6 months after the start of the next decade may actually hurt many consumers.  For example, some experts say individuals with below average credit may not be able to obtain “subprime” cards which, while loaded with fees, can help rebuild credit scores.

Even those with good credit could get hurt by these rules (a long time from now).  For example, credit card issuers may (and I imagine they will) find new ways to extract extra dollars from consumers.

Nevertheless, when summer of 2010 roars around, banks will be prohibited from:

–Placing unfair time constraints on payments. A payment could not be deemed late unless the borrower is given a reasonable period of time, such as 21 days, to pay.

–Placing too-high fees for exceeding the credit limit solely because of a hold placed on the account.

–Unfairly adding security deposits and fees for issuing credit or making it available.

–Making deceptive offers of credit.

Additionally, and number one in the too little, way too late category, credit card companies will be required to give consumers 45 days notice before any changes are made to the terms and conditions of a card agreement.  This will surely help out the millions who have had their interest rates raised for no apparent reason.  If, of course, it were 2010.

In a time of economic chaos, our government has once again shown us that it can stand up to big business and deliver citizens the help they need.  Unfortunately, that help isn’t arriving when we need it most.  And that time is today.

Sources: 

http://www.federalreserve.gov/newsevents/press/bcreg/20081218a.htm

http://www.ots.treas.gov/?p=PressReleases&ContentRecord_id=4a2b42c5-1e0b-8562-eb93-76deb8152159