I just received a notice from a local department store that they are INCREASING my interest rate from 24% to 31%! I’m a bit befuddled since the Fed recently lowered the funds rate by 0.50 and I pay off my account monthly. My credit is excellent. I decided to call the 1-800 number on the notice and was told this is an increase “across the board” and they do not have a lower rate to offer me. I enjoy receiving my benefits from using the card and even though I rarely pay interest as the bill is typically paid off every month, I can’t support this rate. I asked if there was anything I could do and she informed me that I have no options…except to no longer use this card.
With the Fed funds rate going down, our credit card rates (in theory) should be going down as well. This 7% jump in interest rate is appalling. My other credit card that I use has an interest rate of just under 17% with milage benefits, which will now be my “go-to”.
It’s a good reminder review your credit card statements and see what your current interest rates are. Had I not opened and read the notice about the change in terms, I would have missed this.
There are different actions that you should take with your credit cards depending on what your financial plans are and what your credit profile looks like.
For example, if I were considering buying a home or wanting to have a higher credit score, I should keep the card open and continue to use it for small purchases each month, like buying a bag of groceries or tank of gas; and pay it off each month. This is to keep the established history with this account open (I may still do this just for my score). If I don’t care about optimizing my credit score and if I had a balance, I would maybe consider transferring the balance to a lower rate card or home equity line of credit and closing the card. Transferring balances and opening up new credit lines can negatively impact your credit scores if you’re balance is more than 30% of the credit limit or if it’s a new account; plus, closing or no longer using an account may cause your score to go down as well.
For some people, the “snowball” method works well with focusing on your smallest account, paying it off and then applying those “freed up” monthly payments towards your next lowest bill and so-on. The only real issue with this one is that you could be damaging your score if you stop using the smaller, paid off accounts (assuming they were “established” credit and not new credit).
With the holidays and shopping season upon us, if you’re considering buying a home and using your credit or pay-later plans; please keep in mind how much this may impact your potential mortgage loan approval. In fact, I recommend contacting your favorite licensed mortgage professional to create a strategy to help you avoid pitfalls over the holidays.
If you’re thinking about buying or refinancing a home, even if it’s more than a year away, I’m happy to help!
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