US Financial Management, Inc.

The report was released in July by Consumer Action, a nonprofit consumer advocate group.  They surveyed 22 credit card issuers by posing as consumers to receive straight-forward answers.  The little-known facts of how rates and limits are determined may be surprising.

Card issuers determine your perceived risk as a borrower, and cite that to raise rates or reduce limits.  Bank of America, Digital FCU, and Discover all stated “too many credit cards” and “too many inquiries on credit report” as risky behaviors.

Seemingly unrelated factors, such as increased defaults and lower profits for the credit card company, can also affect you as a borrower.  Credit card companies can use the market conditions, economy, and business strategy in setting APRs.

They also look at any other noncredit accounts you hold with them and credit cards from other companies.  Chase, Citibank, Discover, HSBC, and Washington Mutual look at your payment record and current interest rates at other banks.

Some issuers reduce your credit card limit as you pay down your debt, keeping your limit close to your balance.  This can negatively affect your credit score, as you are often not notified about the change, potentially leading to declined charges.  All this can snowball into problems with other lines of credit.

Once caught up in high interest rates, it may take six months to a year of on-time payments before a creditor will consider reducing.  Bank of America and HSBC told Consumer Action surveyors that cardholders can never return to their original rate after incurring APR penalties.

If you’re credit has been caught up by one of these credit card tricks, U.S. Financial Management can help.  Call to receive a free, no-obligation consultation about our debt negotiation program at 1.800.738.5351, or visit www.usfmgroup.com.

Source: Smart Money and Consumer Action