Oct 2, 2008 10:06 pm US/Eastern
Credit Card Debt Jumps 8 Percent From Last Year
American credit-card debt is up more than 8 percent from a year ago, the highest amount ever recorded.
This has caused credit to tighten in unexpected ways.
Consumer Reports says some companies are doubling and even tripling their interest rates, and not just for people with bad credit ratings.
John Carmichael is one of them. He says he always made his credit card payments on time and never had problems with his credit ratings, so he was shocked earlier this year when the interest on his Bank of America VISA card nearly tripled overnight from around 8 percent to nearly 25 percent. "To jump from a low rate to a high rate in one fell swoop, with no justification in something that I did wrong, I think is bad business," said Carmichael.
Bank of American says they raised his rates because Carmichael had too much debt, even though his card balance was almost $1,000 below his limit. Carmichael speculates that banks are changing credit card terms to compensate for mortgage related losses, something Consumer Reports staffer Chris Fichera says is possible. "Banks earn a large part of their revenue from credit cards. So when the mortgage meltdown hit, they turned to credit cards to make up for slacking profits."
What should you do? Credit card companies must alert you to changes in your account, so while it may look like junk mail, don't toss out a notice without reading it. If you get a notice that your rates are going up, the bank may give you the choice to stop using your card and pay off the balance at the old rate, which is the deal that Carmichael worked out with Bank of America.
But Chris Fichera says, don't expect the same treatment if you're not a good credit risk. "Some economists fear that overextended credit-card holders could be the next shoe to drop in the economic crisis. With home-equity loans harder to get, some people are turning to credit cards to cover their expenses."
If you're not happy with your credit card terms, Consumer Reports says, make a switch. You can compare cards on line at sites like
cardratings.com and
bankrate.com. Consumer Reports recommends looking for a card with a low interest rate and no annual fee. And be sure to read through the terms and conditions so there are no surprises later.
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