The credit card party is officially over

In 2007, Congress conducted hearings on issuers' most controversial practices, including "any time, any reason" rate increases and "universal default" penalties, which allow issuers to increase rates if they discover a borrower was late to pay another lender. In February, Rep. Carolyn Maloney, D-N.Y., introduced a bill that would ban those practices and require 45 days' notice of any changes in rates or terms. (Issuers can now change virtually anything about a credit card agreement with just 15 days' notice.)

• Talk back: Has your card company jacked up your rate?

Not all issuers have managed to stay under the radar, however.

Bank of America, for example, drew attention by doubling and even tripling interest rates on some customers who haven't been late or otherwise suffered serious deteriorations in their credit profiles. An article on the issue by BusinessWeek (and republished by MSN Money) drew scores of affected customers to the Your Money message board.

The number of customers who received the rate increase notices is unknown, although Bank of America spokeswoman Betty Riess said 94% of the issuer's cardholders over the past year had rates that stayed the same or were lowered.

The rate increases that did occur weren't arbitrary, she said, and were "based in part on the credit profiles of individual customers."

"When we review individual accounts for risk," Riess said, "we take into account a customer's performance with us as well as external credit criteria, such as taking out numerous loans, using substantially all the credit available to them or defaulting on loans to other lenders."

How to protect yourself

Jefferson said she doesn't fit that description, although she was initially told her rate had been increased because her credit reports showed she was using too much of her available credit.

At the time, her balance of $4,000 equaled about 62% of her available $6,500 limit. She had three other credit cards with limits totaling $7,500, but "all the others have a zero balance," said Jefferson, who now is a project manager for a publishing company. "So (the phone representative) was basically telling me that the rate increased because I was using their card."

Jefferson's story had a relatively happy ending. She had the cash to pay off the card, and did. Bank of America then offered to change her rate to 8.99%, only slightly higher than her original rate.

But the experience left her soured on the company.

"I know times are hard and they've lost a lot of money recently," Jefferson said, "but to penalize good customers is not good business."

If you're carrying a balance on any credit card, you'd be smart to watch the mail (or your e-mail, if you've gone paperless) for notices of any changes. If you get one, consider the following game plan:

• Don't accept a rate increase or other change as final. Call the issuer to ask why the increase happened and whether anything can be done to reverse it.

• Check out your options. If the issuer won't back down, check with your other credit card companies to see if you can transfer your balance at a low rate. If not and your credit is good, you may be able to land a better balance transfer deal by opening a new account. MSN Money, CardRatings.com, Bankrate.com and LowCards.com are places to check for offers.

• Opt out. If you can't transfer your balance, inform the issuer in writing that you want to close your account and pay it off under the old terms.

• Stop playing the game. Carrying credit card balances not only costs you money, but it leaves you vulnerable to the changing whims of card issuers. Resolve to win the game the best way you can: by not carrying balances or paying interest.

Liz Pulliam Weston's new book, "Easy Money: How to Simplify Your Finances and Get What You Want Out of Life," is now available. Columns by Weston, the Web's most-read personal-finance writer and winner of the 2007 Clarion Award for online journalism, appear every Monday and Thursday, exclusively on MSN Money. She also answers reader questions on the Your Money message board.

Published Feb. 28, 2008

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