Beat Tough Credit Card Terms

Last Updated Apr 15, 2009 8:40 PM EDT

You probably don't spend as much on your credit card
as you used to. (There's a recession on, right?) Nationally, in fact,
Americans have slashed credit card usage by about 4 percent.

Card companies want your money anyway. In this recession, they
need it. "Card issuers are hurting, and the more they hurt, the more
they want to squeeze their customers," says Curtis Arnold, founder of and author of How You
Can Profit from Credit Cards.
You may have received a notice saying your
card's rate was rising, your credit limit was cut, your minimum
payment went up, or all three. Some issuers are canceling cards that haven't
been used in 12 to 24 months. (American Express even offered a $300 gift card
to some customers who agreed to repay all they owed by April 30.) Credit card
reform may be coming in a few months
. In the
meantime, you still need to learn how to outsmart your card issuer.

Scrutinize Your Monthly Statement

Find out if your credit card issuer
raised your rate or lowered your credit limit.

First thing to check: your card’s interest rate. A
striking 44 percent of Americans don’t know the rate on the card they
use most, according to Standard & Poor’s. Credit card
companies are required to notify you in advance of any rate increase (unless
you defaulted), but you may have missed the announcement in the mail. If your
current rate seems higher than you remember, unearth your old statements to see
when the bank hiked your rate. The average rate for a plain-vanilla card is now
about 11.5 percent; 13.7 percent for a cash-back card.

Next thing to check: your card’s credit limit.
In better times, your card company may have upped your limit to nose-bleed
levels without your asking. If you’ve never charged near that amount,
you might be inclined to ignore a drop from, say, $20,000 to $10,000. But
lowering your limit can pummel your credit score. If your limit was cut from
$20,000 to $10,000 and you carry a $9,500 balance, you suddenly appear more
loaded with debt and less creditworthy. So if your score dropped because
Capital One lowered your limit on its card, Bank of America might then
raise the rate on its card in your wallet. “It turns into a
horrible vicious cycle,” says Robert Manning, author of Credit
Card Nation.

Your issuer may also have increased your minimum monthly
from, say 2 percent of the balance to 5 percent. If you are
struggling with large debts, you may find yourself suddenly unable to meet that
higher minimum.

Nitty Gritty

Open the Mail You’d Rather Toss

Read those mouse-print mailings explaining upcoming changes
in your card’s terms. Yes, you may have to get out your reading
glasses. But doing so will give you enough time to complain if you learn that
your card company is about to hit you with a new fee, new penalty, or higher
interest rate.

Get Ahead of the Curve

Prepare yourself for a higher rate or lower
limit — you’ll be in better shape if either comes.

Generally, card issuers looking to raise rates or lower credit
limits scrutinize people with balances over $5,000, says Arnold. If you fall
into this category, try to finesse a rate hike or a lower limit by paying down
your card’s balance in the next two or three months or by
transferring half of what you owe to another card. Some cards that accept balance
transfers offer a 0 percent introductory rate for the first year. That low rate
may offset the 3 percent balance transfer fee many cards charge.

Other Resources

Where to Find Low-Rate, Balance-Transfer Credit Cards

You can find a list of balance transfer cards offering 0
percent rates for the first 12 months at
And has a list of
cards that charge no transfer fee but provide a shorter 0 percent interest

Try to Convince Your Issuer to Restore Your Terms

A personal plea may keep your card company from
boosting your rate, raising your minimum, or lowering your limit.

Once upon a time, you could get a lower credit card rate just by
asking — if you were a good customer. These days, success doesn’t
come so easily. But “you should try,” says Gerri Detweiler,
a consultant to, a card-rating Web
site. So if your rate just went up and you pay your credit card bill on time,
phone the company and ask to have the old rate reinstated. If the rep says “no,”
ask for a manager. You may have to threaten to close your account to get a
counteroffer. (Just make sure that you have a back-up card in case the rep
takes you up on your vow to go elsewhere.)

You should also call your card issuer if you want to challenge
an increase in your minimum payment or a cut in your credit limit. Ask for a
delay in the minimum payment hike if you’re in a financial bind and
can’t afford the higher amount.

Voice of Experience

Why You Need to Phone Politely

Keep your cool when you call your card company for better
terms. Gail Hillebrand, a senior attorney at Consumers Union, knows of one
woman who phoned her card issuer after it lowered her credit limit and so
irritated the rep that the rep dropped the limit even further.

Set Up an Automatic Payment Plan

missing a due date and the accompanying costs for being late.

If you miss your credit card’s due date, you could get
hit with a late fee, an interest rate hike, and a rate hike from one of your
other cards. So now’s the time to set up an automatic payment plan
that takes money directly from your bank account. Choose an amount that will
likely cover your minimum monthly payment. This way, you won’t get
spanked with a late fee just because your Chihuahua ate your monthly statement
or you were out of reach in Patagonia.

What Not to Do

Don’t Punish Savings to Pay Off a Card

“We used to tell people not to keep money in a
savings account earning 5 percent when they could use it to pay off a credit
card at 19 percent,” says Detweiler. But in today’s
economy, a stocked
emergency savings fund is crucial
. Detweiler recommends reducing credit
card debt as much as possible, but keeping enough cash in the bank to pay bills
in case you or your spouse loses a job. “Stay liquid,” she

Find a Better Card

Switching plastic can get you a lower interest
rate and better terms. Just be sure you do it right.

Fed up with your current card or just want to replace it before
your issuer’s recently announced oppressive terms kick in? Start the
hunt for a new card before canceling. Once you cancel, your card’s
account freezes and you need to pay off the balance with the current
terms. Charge something new and your interest rate, even on an old balance,
will spike to the new, higher one.

Detweiler suggests trying a credit union, because these
near-banks often offer lower rates and fees than competitors. (Find out which
ones you’re eligible to join, if any, by calling the Credit Union
National Association at 800-358-5710.) You can scour the country for the best
card deals at, href="">, and href=""> To see whether the card you have
is right for the way you charge, try the free href=""> credit card calculator.

Hot Tip

Change Your Credit Card Tie-Ins

Before cancelling your current card, make sure you switch to
a new card any automatic charges that have been pegged to your plastic, such as
magazine subscriptions or monthly bills.