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Has your credit card rate ever been jacked?

Credit card

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.

Card repricing

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?

Comments
bishbut says:
1 December 2017

I just pay it all when the bill arrives so I do not know the interest rate .If I need to know for any reason then I can quickly find out

Lending money is risky. This part of the intro says it: 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 options are to change the card you use, spend a little less on your card, but as far as I can see no commercial lender has any obligation to support borrowing without having control on its terms.

I see credit card interest as a deterrent to borrow on them, and I pay my card off monthly avoiding all interest charges. I think if you run a substantial monthly deficit it is best to get rid of it by pruning your spend or, second best, find another loan source at a cheaper rate – a personal loan perhaps.

My credit cards are paid off by direct debit, so I don’t worry about interest charges. The interest-free period is convenient and gives me the opportunity to move money into my current account if necessary to cope with a large credit card bill.

I have a credit card that I use mainly for personal [rather than household] expenditure and for large items like holidays where it is useful to spread the payments over two or three months. The interest rate was at the lower end of the spectrum. It is labelled a “free for life” credit card so I realise the issuing bank was going to make sure it wouldn’t lose and would have to tweak the interest rate from time to time. Any balance is paid off each month except maybe once a year when there is a particularly heavy item.

I noticed a few years ago that as soon as I used it for a large expenditure [I think it was a kitchen refit] that was not paid off immediately the interest rate was raised substantially. “Just when I need it most . . . “, I thought. I rearranged the financing to eliminate the debt but it took a long time for the interest rate to be reset to near the previous level. Since I was paying off the balance in full every month it didn’t matter.

I have not used the credit card for any major expenditure for two or more years now but I recently received a notification that the credit limit would be reduced in line with my apparent lesser need for the card. The credit limit is now no longer useful for any major expenditure at all so the bank will no longer benefit from me getting into debt from time to time and having to pay the loan back at a premium interest rate. I can ask to keep, or even raise, the credit limit but I have decided to let it happen. I shall keep using the “free” credit card for small purchases for the rest of my life and pay off the balance in full every month. It is my earnest desire to make sure the bank never profits from my use of the card or has any justification for cancelling it.

The “free for life” strapline is not worth anything now because there are plenty of credit cards available with no monthly charges, but at the time it was introduced there was a risk that charges would become the norm, presumably factored-off against interest. What I don’t like is that there is a computer programme continuously running its eye over my spending [and that of all other customers] deciding how it can tweak the terms to suit the bank’s interests over and above their customers’. The notion that banking should be a long-term relationship based on mutual trust and prudential financial conduct no longer applies and, to the detriment of all customers who have the bear its cost, switching around is the way to go.

I have no idea what the interest rate is, and I don’t need to know. The bill gets paid off IN FULL every month.

Avellana says:
1 December 2017

I had a notification from Halifax informing me that they were raising the interest rate. When I rang to query it their reason it was that I had exceeded my credit limit.
As this is the card which I use solely for online purchases, I have purposely kept the credit limit in the £100’s rather than the £1000’s (which they have tried to raise it to), and I almost always pay the balance off in full each month. The overspend was caused by a hotel billing me despite the fact that I had cancelled a booking in good time. They refunded the amount almost immediately so it was quite obvious what had happened. Halifax refused to change their decision even though it was obviously not my fault, so I am now about to move all of my accounts to another bank. They used to be a reasonable bank but now offer among the meanest rewards and interest rates. So their loss all round.

J ward says:
4 December 2017

If you use credit cards wisely, you can shift your debt to another card by a balance transfer at minimal cost.
Also this enables you to keep more of your money in the bank, thus ensuring you have money for unexpected bills. Remember to set up the d/d and pay or transfer again before the end of the ‘0’ ends.
I have achieved this by balance transfers, on my spends credit card, alowing a credit on my spends credit card, but again ensuring that the balance is paid off in full via d/d every month.
By keeping a large amount of money in my current account it also gives me interest every month, therefore offsetting any handling fees charged on the balance transfers.

Patrick Taylor says:
5 December 2017

Not paying off your credit card each month is an unwise way of living. Arrange a personal loan to clear the debt and the reduced interest charge plus repayment will make life better.

I see a headline rate of 3.6% from the Clydesdale and I suppose credit card rates are in the high teens. The option to use one of these to clear debt should not be ignored:
Barclaycard Platinum 18 month balance transfer credit card. 0% interest for 18 months on balance transfers from the date you open your account (2.99% fee applies). Transfers must be made within 60 days to benefit from the 0% offer. 0% interest on purchases for 3 months from the date you open your account.