So what good is an excellent credit score nowadays? It’s gotten harder and harder to get a mortgage, nevermind at a good rate, and those who minimally use their credit cards are having them canceled left and right. I should know — as I’ve mentioned in the past, I had Chase outright cancel my card due to inactivity, in addition to having Capital One warn me that my interest rate will rise in January 2010 (I’m waiting to see if this goes into effect with my next statement) and FIA cut my limit in half, from $30,000 to $15,000. By the way, my average credit score is 800.
If they can do these things to people with high credit scores, what the heck are they doing to the folks with average and below-par credit histories?
The newest credit card legislation says you must be notified of an interest rate hike at least 45 days in advance, and starting February 22, rates cannot be raised in the first year of a credit card’s use. But why isn’t there a cap on how much an interest rate can skyrocket? Also after February 22, interest rate increases can’t be applied to existing balances. So if I have a balance on my Capital One credit card, that balance will correspond to the current interest rate, while future purchases will fall under whatever higher interest rate I get stuck with.
I know someone with impeccable credit whose interest rate on a Citibank credit card ballooned from under 10% to a mind-boggling 22%, in one fell swoop. This person’s credit score is way over 800, and there’s no balance on the card. But the action still caused anger and confusion — how could they arbitrarily increase the rate more than 12% in one shot?
These are yet more reasons for ditching the plastic and only paying with cash, as advocated by many other personal finance bloggers and financial professionals.
Don’t forget to keep a close eye on your credit card statements in the coming months to make sure you aren’t affected by sudden interest rate increases.