Credit card firms are allowed to hike the interest on your deal years after you sign up, even if you’re a good borrower. Have you ever been affected by this practice?
We all know that when you apply for a credit card a provider will perform a credit check and use your credit score to determine whether you get the deal.
But were you aware that, once you have the deal, lenders are allowed to jack the interest rate up on a credit card offer, sometimes years later, when your financial situation may be less rosy?
Credit card rates
Rate-jacking or credit card ‘repricing’, as it’s more formally known, is a common practice and it’s something that happened to me recently.
I use my credit card pretty responsibly; spending and paying off a big chunk of my balance each month.
So I was shocked when I received a letter from my provider which stated that after a review of my account it had decided to increase my interest rate from 18.69% to 19.69% APR.
The reason for the hike was a change in my credit score.
The letter stated ‘we have seen on your credit file from credit reference agency Callcredit that your financial circumstances may have changed. We have used this information to adjust your rate.’
It’s pretty depressing that despite nothing in the way I manage my finances changing, a blip on my score linked to an electoral roll issue had given my provider cause to hike my bill.
Credit card repricing is a legal practice that allows providers to change the interest rate it charges customers.
There are two types of repricing; risk-based and general.
- General repricing gives lenders room to act when something like a sudden change in the economy occurs.
- Risk-based repricing is where a provider thinks that a customer is more or less likely to be able to pay off the money they have borrowed.
The decisions to change the APR on a deal can be linked to missed payments or signs that you aren’t managing your account well, but it can also be down to a review of your credit score, which might be lower than when you first applied for the deal.
Paradoxically this is in the name of responsible lending at a point when customers may be starting to struggle financially.
I asked some of the major credit card providers whether they had a policy to use risk-based repricing to see how widespread the practice is.
Nationwide was the only lender I spoke to that said it did not use a system of risk-based repricing on its customers – and hadn’t done for five years. Santander, TSB, Virgin Money and Barclaycard confirmed they use risk-based repricing for credit card customers from time to time.
MBNA and Lloyds Bank said they couldn’t reveal their policy due to ‘commercial sensitivities’.
What are your rights?
Your credit card provider has to give you 30 days’ notice if it wants to hike your interest rate.
Either you can accept this, or choose to reject the hike and repay the outstanding balance at the current rate to close the account down.
Even though my hike amounted to an extra 7p for every £100 I have outstanding on my card, I decided to go with the latter. But I have to admit I felt cornered by the rise and my provider in this situation was a winner whatever I chose to do.
Have you ever been hit with a credit rate hike out of the blue? Was it justified? How did you deal with it?