Don't let them hike your credit card rate!. Since the credit crunch, some companies have begun 'rate-jacking' their customers' APRs - in other words, massively increasing the cost of existing credit card debts. So are lenders allowed to do this? And is there any way you and me can fight back?
If you have recently received a letter or email from your credit card provider informing you that the standard APRs charged on your borrowing will increase, you've been rate-jacked!
But what does rate-jacking mean?
Put simply, rate-jacking is the act of upping the interest rates attached to credit card purchases and cash withdrawals. These rate rises affect not just new transactions, but existing debts as well.
Rate-jacking has been increasingly prevalent since the start of the financial crisis. As lenders have become less willing to dole out credit to their customers - and increasingly worried about whether people will pay back their debts - companies have hiked up the cost of borrowing to reflect the increased 'risks' they face.
Sadly, this has affected some customers who already owe credit card companies money. For them, being rate-jacked means paying back what they've borrowed may be more difficult, might take longer and will certainly be more costly.
Even worse, rate-jacking could push some individuals dangerously close to debt crisis by making their existing borrowing too expensive to manage.
Why me?
If you've been rate-jacked, you're probably concerned that you've done something wrong. You may also be worried that you have a bad credit rating.
In fact, having your credit card rate hiked doesn't necessarilymean either. While it's true that lenders have cracked down on customers who have chequered credit histories or don't pay their bills on time, many people with entirely unblemished pasts have also been rate-jacked.
The simple reason for this is that credit card providers have shifted the 'good credit' goal posts since the start of the credit crunch. People who they would once have lent to happily are now considered less desirable customers.
On one hand, jacking your rate is your credit card provider's way of 'discouraging' you from borrowing more money.
However, rather conveniently, it also beefs up the amount of cash the firm will make from lending to you.
Can lenders really do this?
Yes - rate-jacking is perfectly legal.
The vast majority of credit card companies offer variable interest rates on their products, which means they can increase (or decrease) the cost of using them at any time.
However, that doesn't mean there is nothing you can do if you're the victim of rate-jacking.
Below, I'll outline two things you could try to fight back against credit card rate rises.
Option 1: Shift your balance to another card
When it comes to dealing with expensive debts, getting hold of a balance transfer credit card is an option that's always worth thinking about.
If you've been rate-jacked, shifting your existing borrowing onto a 0% balance transfer card such as the Virgin Credit Card could significantly slash the cost of paying it back. You can read more about how this works in the article 'The beginner's guide to balance transfers'.
However, it is crucial to be aware that, in the current climate, balance transfer deals are pretty hard to come by. Only individuals with virtually flawless credit histories are likely to accepted for market-leading deals such as that from Virgin, so it's important to be confident you'll get one of these cards before applying.
If you go for a balance transfer credit card and get rejected, this will leave a 'footprint' on your credit file that may put other companies off lending to you. Thus, you could be left in a worse position than before!
In my view, anyone concerned about the state of his or her credit file, or who has recently been rejected for credit elsewhere, should think twice about trying to get a new 0% deal.
Luckily, there is another way you can fight back against rate-jacking.
Option 2: Reject the increase imposed on you
Late last year, the government warned credit card companies that, if they didn't show a new willingness to treat customers fairly, the Office of Fair Trading would be instructed to launch an investigation.
Heeding this warning, the firms agreed to abide by a new set of principles that came into force in January 2009.
While these don't guarantee that we'll get gold star customer service from our credit card providers, this new 'code of conduct' does give people who've been rate-jacked the opportunity to reject the APR increases imposed on them.
If you don't want to accept a higher interest rate when you are notified yours will be put up, you can write to your credit card provider and state this.
It is important to be aware, though, that rejecting the rate rise will also mean agreeing to put your credit card out of use. In other words, no new spending will be possible on your plastic once you say no to the proposed price hike.
Many people worry that if they agree to stop using and pay off their card in this way, they'll be hit with a demand for immediate repayment of the entire balance held on it. However, this is unlikely to be the case as lenders have promised that customers will have a "reasonable" length of time to clear their cards.
While this sounds vague, it should mean that if you have been paying back a certain sum on your card per month (even if it is the minimum required) you won't have to increase this.
You'll be able to continue dealing with your debt at the same rate as before, and - most importantly - it will also attract the same rate of interest.
If you find your lender does not treat you in the way outlined above, you should contact the Financial Ombudsman Service (FOS) at once and complain.
It is also important to note that if you are in talks with a not-for-profit debt counselling service such as Citizens Advice, National Debtline or the Consumer Credit Counselling Service, the new principles lenders have agreed to mean you should not experience rate-jacking in the first place. ( mailcompare.mailonline.co.u )
Again, if you do, it's important to seek help immediately from the FOS.
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