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CREDIT, COLLEGE, TAXES AND REAL ESTATE

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ASK KIM
The 31% Credit-Card Trap

I recently had two late payments on one of my credit cards. My APR was raised from 15.98% to 31%. How long will this high rate last? Also, the interest rate on another one of my cards increased, too, even though I always paid that bill on time. Can they do that?

You bet they can. Your issuer is one of many credit-card companies that exact a high price from customers who miss their deadlines. Issuers have been hiking rates, often beyond 30%, and charging late-payment fees as high as $39, reports a recent study by the Government Accountability Office. Some Citibank and Chase cards, for example, can raise their rates as high as 32% if you miss a payment.

And you've been caught in another credit-card trap: Even if your record is spotless, issuers may jack up your interest once you've paid late on another card. They may also apply this punitive "universal default" rate if your credit score drops for some other reason. Some Citibank and Chase cards can change their rates and terms based on the number of accounts a cardholder has and the balances on those accounts.

Read your card agreement. Wachovia, for example, automatically lowers your rate after you make four on-time payments; Capital One requires 12 on-time payments. But you may still end up paying more than your original rate.

It pays to pick up the phone and ask the issuer to reduce your interest. "Let the bank know that it's going to lose a customer if it doesn't lower the rate," says Scott Bilker, founder of DebtSmart.com and author of Talk Your Way Out of Credit Card Debt. "You have a 50-50 shot." And if the first answer is no, try again a few days later. "Sometimes it's a matter of catching the right person at the right time," says Gerri Detweiler, author of The Ultimate Credit Handbook.

If your bank is adamant, transfer your balance to another card. You may not qualify for the best rates, but you should be able to beat 31%. Then pay off the balance.


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Send Kim your questions. She can't answer every one, but she'll answer as many as she can. If your question isn't published within a few weeks, scan the archives to see if Kim has covered the issue before, or start a discussion in the Kiplinger.com Community.
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