I just got off the phone with a consumer who just wanted to know if what she was going through was normal, or if anything could be done. She doesn’t need credit repair or debt relief. In fact she’s got no credit card debt whatsoever. She’s had only one credit card for the past 8 years since she turned 18.
Never a missed payment, never carried a balance even close to her $12,000 limit, and almost always paid off her balances in full. According to her the bank called and informed her that she had one of two choices:
• See her interest rates go from 11% to 33%, or
• Close the account
So being responsible in her use of the one credit card that she’s opened is ultimately going to lead her to pay unreasonably high interest rates or destroy her credit profile. She currently has an average credit score of 700 with the three major bureaus. While not an exact science, closing this account would almost certainly put her below 600.
Why Would They Do That?
It’s simple really; the bank isn’t making any money off of her. Banks make money through interest rates and fees. If she pays off her purchases immediately, money’s not being made through interest. If she’s never made a late payment or gone over her limit then the bank isn’t making money through fees.
I guess the argument from the bank’s point of view is that if she’s paying so promptly, then having to pay 33% shouldn’t really be any different from paying 11%. But to punish someone when they should be rewarded is just a despicable practice.
A Rock and a Hard Place
Unfortunately there’s little that she can do in this situation. If she closes the card, her length of credit history goes from over 8 years down to nothing. The average age of your credit history makes up about 15% of your total credit score. Even if she were to open another card to use as her primary card for convenience purposes, she’s still cutting those 8 years in half and lowering her score.
So she’ll be forced to grin and bear her interest rates tripling, or take actions that she knows will lower her credit score. For all these new credit card and debit card laws that are supposed to be saving us from being swindled by our banks, it just seems like they’re going to find another way to stick it to us.
Obviously the nice woman I spoke to earlier isn’t alone. Make sure you’re reading your credit card bills thoroughly. If you’ve had something similar happen, feel free to give us a call to see if there are other possible options that don’t ruin your credit in the process.
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