|
As long as you pay your bills on time, keep your debt to a minimum, and stay on top of your credit score, your credit card interest rates will remain reasonable, right? Not necessarily. In the wake of the credit crisis, credit card companies are going to great lengths to identify the cardholders that represent the most risk. They can then offset this risk with elevated interest rates. What’s interesting is what credit card issuers identify as red flags that a cardholder may be in financial hot water. For example, using your credit card at a thrift store might raise your interest rates, and we’ll explain why in what follows.
Tracking Spending Patterns
Unbeknownst to most cardholders, credit card companies keep track of when, where, and how you spend your money. Credit card companies then use this information in part to determine your interest rates. Using your credit card at certain places may lead to interest rate increases, even if you pay on time and are an otherwise excellent customer. Aside from thrift stores, using your card at pawn shops, marriage counselors, massage parlors, and tire retreading services will also get the attention of your lender.
Why the Rate Increases?
When creditors recognize spending patterns that typically indicate that a cardholder is struggling financially, they fear that the cardholder will soon default on his/her payments. To offset this risk and mitigate their losses, they increase the interest rates of so-called “risky” cardholders. Frequently, consumers who use their credit cards at second-hand stores and other retailers that primarily serve the lower classes are headed for financial trouble. Of course, this is not always the case, but creditors are doing everything they can to stop the hemorrhagic losses they experienced during the credit crisis.
How to Avoid Rate Increases
You have several options on how to avoid credit card rate increases based on where you shop. First, you could stop shopping at the places creditors deem high-risk. Alternatively, you could still frequent these places, but you should try to pay with cash, a check, or a debit card instead of a credit card. Because most creditors also view the use of cash advances as a bad financial omen, you should also try to avoid credit card cash advances if possible. Although the recently passed Credit Card Act of 2009 may place some restrictions on how and when creditors can raise your interest rates, they can still basically do so with impunity. To be safe, you should remain aware of how your spending patterns appear to your card issuer.
|
