Credit Card Interest Rates
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Credit card interest rates can be expensive for those who are part of the major portion of Americans who owe an average of $7,000 to $8,000 in debt to creditors. A good rate should generally fall below 13%. Any that is higher than 12% is too high. Many consumers typically pay between 13% and 22% with some as high as a whopping 35%. A wise consumer will, out of necessity, find a way to lower rates, pay off balances or change creditors in order to have the benefits of usage without the penalties of astronomical percentages.
Creditors are the only businesses that have not received controls on raising interest at their discretion. Most consumers are surprised to learn that most creditors operate out of South Dakota and Delaware because the usury laws were changed in those states to accommodate a no-cap policy. Creditors operating out of those states can raise rates anytime and to whatever percentage cardholders can be prodded to pay. This usury law was put into effect in the 1980's and has continued to allow creditors free reign with the consumer's credit card interest rate.
For any reason, creditors can raise their rates under consumers' noses until cardholders contact them for an explanation. Most consumers are unaware that companies are well within their rights to raise interest any time cardholders are seen as a risk to their investment. Consumers may wonder why the percentage has suddenly gotten higher even though they signed a contract with the company and agreed on an advertised rate. Most agreements have a clause within the contract that states that the company can raise the credit card interest rate anytime they believe that the consumer is a risk to paying off the account.
Risks that can raise the percentage can be anything from a one day late payment on the electric bill to a late payment on the mortgage. Even though these bills have absolutely nothing to do with credit card payments, creditors can access credit reports anytime and check for any late payments. Even if the cardholder has never, ever had a late payment for anything, but just this once, the creditor can raise the percentage. So cardholders shouldn't assume that original credit card interest rates that were agreed to will hold.
The percentages can also be raised for absolutely no reason by creditors if they only provide consumers with a 15-day notice before processing the higher rate. Cardholders may have signed a contract and agreed to pay 7% on the card. If the creditor decides to raise the credit card interest rate 6 months later, they can according to the notice provided within the contract. Most of these notices state that the company can raise rates for any reason providing they give a 15 day notice. So consumers should always read the fine print on any agreement before signing.
Another way in which consumers can be charged without being aware is through penalty fees for late payments. Creditors have no limit to the amount they may charge for late fees even if consumers are late even one time on a payment. A cardholder may be used to the typical $10 charge on a late payment, but should be prepared to possibly pay much more. There are any number of ways that cardholders can lose money through hidden fees and the unrestricted financial policies of most creditors.
It is important to know that creditors periodically check consumer reports as do other financial institutions. Those who have found that their credit card interest rates have risen lately, but haven't been late with payments, may assume that there is another area in which they've made a late payment. Deteriorating credit is a cyclical process and one company will determine their interest rates from the consumer's dealings with another company.
Cardholders need to be aware of the cascading effect of late payments and minimum balance payments. This can raise credit card interest rates as well as other rates and cause an overall increase in outgoing monthly payments. Consumers must be knowledgeable about all the contracts they sign and about all policies that govern creditors in order to wisely manage their money. "For wisdom is better than rubies; and all the things that may be desired are not to be compared to it." (Proverbs 8:11)
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