Don't Fall For This Credit Card Sting

The credit card comparison tables are full of enticing deals, with low APRs combining with long 0% balance transfer offers or generous cash back schemes to tempt new customers into applying. At first, you may be very happy with your new card. Okay, so you're never going to find a truly 'cheap' credit card, but the standard APR of most cards these days is usually fairly decent and affordable.

However, did you really pay attention to the credit agreement you signed before receiving your card? If you did you'll know that the card issuer can change the interest rate they charge at any time and for any reason (hence the word 'variable' always quoted after the APR figure).

This legal right to change the APR of a card is usually used to vary the interest rate by a few percentage points either way in response to economic conditions, but the changes can be far more dramatic than this, and can even enter into 'rip-off' territory. There's one particular trap that you should definitely avoid.

Imagine you get a new card with a decent APR and a low-to-middling credit limit. Over time, you show yourself to be a responsible cardholder, always making your payments on time, and while you might build up a balance, it's nothing excessive. The card issuer will usually 'reward' this behaviour by increasing your credit limit, sometimes by several thousands. Of course, the sensible thing to do would be to ignore this, but we're all susceptible to temptation, and so for many people, their balance will climb steadily up in line with their credit limits.

At some point, you might well find that you've somehow built up quite a sizable debt - but not to worry, that decent APR means that it's not costing you all that much to service.

Then one day, purely by oversight, you make a payment late. Maybe your statement date changed and you didn't alter your payment date in time, maybe you were temporarily short of cash - however it happened, it was a small aberration which was quickly corrected and after paying the standard 12 fee for late payments, you thought nothing more of it.

Until, that is, a letter arrives a few weeks later informing you of a change to your card's APR. And not by a few percentage points either, but by a whopping 10 points, and suddenly you're paying nearly 30% on your debt, and your usual payments barely cover the interest costs never mind reducing the balance. Your card issuer justifies this by saying that the late payment puts you into a higher risk category, and short of switching to a new card (not always easy in today's economic climate), you're stuck at this higher rate.

Does this sound far fetched? Well, it's not - it's happening to thousands of cardholders of all backgrounds, and while it may seem to be rather unethical, it's all perfectly legal and above board.

So the moral is: don't be tempted by increases in your credit limit, and ensure you have a cast-iron guaranteed way of making sure your payments are always made in good time, to avoid giving your card issuer the excuse they're looking for to hike up your APR.


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