Today's guest post comes from Bill Hardekopf, chief executive of the credit card comparison website LowCards.com:
Last month, Capital One raised some eyebrows by significantly increasing their rates on new customers on the majority of their credit cards. The advertised annual percentage rate on these 15 cards increased from an average of 12.45 percent to 17.24 percent. One could ask, "What's left in your wallet?"
But Capital One is not alone. Many issuers are increasing the rates to new customers on selected cards.
Since credit card loans are unsecured, issuers have been burned during these tough economic times. Bankruptcies, defaults and delinquencies are taking a toll on their bottom line, and we must remember that issuers are in the business to make money.
In this new economic climate, issuers are trying to minimize their risk of unpaid loans as much as possible and consumers are paying the price. Issuers seem to be minimizing this risk in two ways.
The first way is by reducing their exposure to high-risk customers. If you want to obtain a new credit card but you have average or poor credit, you will have a hard time finding a card. If you already have a card but are classified as a high risk customer, you could also see significant changes. Chase recently added a $10 monthly fee and increased the minimum payment from 2 percent to 5 percent for their cardholders who carry a large balance. Last month, American Express offered $300 to some of their high-risk customers if they closed their accounts and paid off the balance by April 30.
Secondly, issuers are quicker to the trigger at raising your interest rates or lowering your credit limits. If you do anything to show the issuer that you are even a slightly greater credit risk, you will likely see your APR or credit limit changed. Negative signals include missing a payment, being late on a payment, exceeding your credit limit or even using too much of your credit limit.
What can consumers do to protect themselves?