Yet that is exactly what credit card issuers are doing. A survey released by Consumer Action, a nonprofit education and advocacy organization, found that 77 percent of the major financial institutions they contacted said they reserve the right to increase a cardholder's interest rates - even on existing balances - at any time and for any reason.
The reasons cited by bank officials included "the economy," "business strategies," or "market conditions" (the stated cause of recent rate hikes by Bank of America and Capital One).
At a time when a number of banks are finding themselves too heavily invested in failing mortgages, it is all too clear that some of the shortfall in profits may be covered by bumping rates and fees for consumers like you and me.
Other items of note:
- The average default rate is now 26.87 perent, up from 24.51 percent in 2007. The highest default rate in the survey was HSBC, with a default rate at 31.99 percent. Default rates can click in for a number of reasons, including late payments to another company, too many inquiries on your credit file, or even a small drop in your credit score. Once your rate adjusts to the default rate, it's very difficult to re-adjust it downward.
- "Chasing balances" is becoming a common practice whereby banks reduce credit limits based on their assessment of a customer's risk. A reduced credit limit negatively impacts your credit score by increasing your debt utilization ratio, which may then trigger the universal default clause. And if the consumer isn't aware that the limit has been decreased, he or she may very well be hit with an over-the-limit fee and then a penalty interest rate for being over the limit.
