Fred Harteis News Articles - Plastic Penalties

Fred Harteis - UP UNTIL SEVERAL months ago, 39-year-old Mark Martinez, was what you'd consider the credit-card industry's ideal customer. His payments were always on time. He never went over his credit limits. He even carried a balance on one of his cards, which meant he was bringing the bank a profit, to boot.

Then much to his shock, Martinez discovered that his card issuer had jacked up his interest rate to a whopping 29.99%. The reason: His $8,000 balance was dangerously close to the card's $8,800 limit. "It was really oddball," says Martinez, whose 790 credit score was high enough to get him any credit he applied for, at the lowest rates available.

Despite his pristine history, Martinez had encountered the latest scourge of the credit-card world: the so-called "default" rate, or punitive charges that credit-card companies can impose on customers suddenly deemed a higher credit risk. Default rates are typically triggered by things like a late payment or going over the credit limit. But they could also be the result of something as seemingly insignificant as running up a higher balance.

In fact, because of a practice called "universal default," credit-card issuers are actually allowed to hike their rates for pretty much anything, according to consumer-watchdog group Consumer Action. In its 2005 Credit Card survey, Consumer Action found that 90% of card issuers would use a universal default rate hike if a customer's credit score decreases, 86% would do so if they paid a mortgage or any other loan late. Nearly half (43%) would hit you with universal default if they decide you have too much debt, while 33% would do it for the exact opposite reason: too much credit available. You can see a rate hike even if all you do is get a new credit card (33%) or shop around for a car loan or mortgage (24%).

Negotiating Power Back in 2003, a study by the U.S. Public Interest Research Group, a Washington, D.C., a consumer advocacy group, found that 56% of the consumers who called their credit-card companies to ask for a lower interest rate were able to get it within five minutes. That may not be as easy today, says US PIRG consumer program director Ed Mierzwinski. "They are being much more difficult because they're trying even harder to squeeze the last dollar out of your pocket," he says. "But if you're a good customer you should understand they don't want to lose you because the cost of acquiring new customers is very high."

Some prep work before asking for a lower rate will certainly help, says Scott Bilker, author of "Talk Your Way out of Credit Card Debt." "Look through your statements and tell them exactly how much you've spent on the card over the last two or three years," he says. "Tell them that business will be gone if they don't lower your rate."

Have at least one or two credit-card offers in hand before you call, says Linda Sherry, spokeswoman for Consumer Action. "Tell them, 'Look, these companies have sent me this preapproved offer. I'm seriously considering taking this, but I'm really loyal to you guys, and was wondering if you could take me down to 10.9%.'"

Alternatively, Bilker suggests, throw the credit-card company a bone. "Tell them, 'I'm buying a refrigerator. I could use your card, or I could use another card. Give me a special deal and I'll use you.'"

Jumping Ship If the card company won't budge on the rate, it's time to switch cards. And while 0% APR offers certainly aren't as easy to come by as in the past few years, there are still offers available for folks with good credit, says Bilker. He keeps an updated list of such offers on his web site. So do web sites CardWeb.com and CardRatings.com. Bilker's advice: If you plan to transfer a balance, ask to do it at the time you apply. It increases your chances of getting approved.

But be wary of balance transfer fees, which lately have also been on the rise, warns Cardratings.com's Arnold. While most fees used to be 3% of the transferred balance, up to a cap of $50 to $75, many card issuers now charge 4% of the balance with a cap of $90, Arnold says. Notably, Bank of America recently eliminated the cap on its 3% fee. So on a $10,000 transfer, you'd be hit with a $300 charge.

One more word of caution: Credit cards typically apply payments to the balance that carries the lowest rate. So if you take advantage of a 0% or low-rate offer on balance transfers, be sure to put the card in a drawer until you pay that balance off. Should you charge up a balance by making purchases, your payments will be applied toward that balance, which will likely carry a higher rate.

Source: Cnn.com

About Fred Harteis: Fred Harteis leads Harteis International. Fred Harteis has a background in agriculture and has created many successful business ventures.