|
Factors That Trigger Credit Card Rate Hikes
by Kevin Erickson
Are credit card companies trying to scam you? On the one hand, they provide a valuable
service that gives you the added convenience of being able to purchase items and
services you need and sometimes don't need and to pay them off in a manner that best suits you.
On the other hand, some credit card issuers are trying to scam you and they do everything
in their power - legal or otherwise to do it. Legal or not, many of the practices they
follow are clearly unethical and unless you are a contract lawyer you couldn't determine
how they planned on scamming you anyway because they hide everything in the countless pages
of fine print that comes with every cardholder agreement.
According to Harvard Law Professor Elizabeth Warren, the credit card companies are misleading
consumers and making up their own rules. "These guys have figured out the best way to compete
is to put a smiley face in your commercials, a low introductory rate, and hire a team of MBAs
to lay traps in the fine print."
The problem is that the industry is operating without fear of penalty. There's no regulator
or customer who can bring this industry to task.
Deadbeat or Revolver
In the credit card industry there are two types of customers - the deadbeat and the revolver.
Don't take this the wrong way but hopefully you're a deadbeat because in the lingo of the
industry a deadbeat is someone who uses their credit cards the way they are suppose to.
As in they pay-off their balances each month and therefore incur no interest charges. No profit
in that scenario and thus, if you pay-off your balances each month (about one-third of Americans do)
then you should be proud to be called a deadbeat because you are using your credit cards wisely.
On the other hand, the majority of Americans are called "revolvers". A revolver is someone
who carries over a balance and is considered to be "the sweet spot" of the banking industry.
This "sweet spot" continues to expand as the average credit card debt among American
households has grown to about $8,000, which is more than double what it was just ten years ago.
This debt has helped generate record profits for the credit card industry in 2004,
an estimated $30 billion before taxes.
The 0 percent Interest Offer
The game today is the "0 percent interest for 6 months" offer. Once again, this can be a
legitimate and great deal if you know how to play the game ("deadbeat") but if you don't
("revolver") it will end up costing you more money in the long run because after the initial
six months the rate will usually jump up to a much higher rate than the normal purchase rate.
Rate Hike Triggers
The industry provides many reasons to justify rate hikes and in all fairness, some are actually
valid. However, many are not and are just flat-out deceptive. One Banking Association spokesman
said that, "Because the credit card business is unsecured lending, the risks associated with the
business must be offset."
| 
Free Downloads
Career
RSS Feed