How to avoid getting ripped off by ‘bumped up’ credit card interest rates

Credit Card Interest Rate Hikes

Credit Card Interest Rate HikesIt’s a nasty trick certain credit cards companies use to quietly ‘bump up ‘ your credit card interest rates. Here’s you can stop them dead in their tracks

This is an issue that makes me furious because it affects ordinary and sometimes vulnerable people who might not know or understand their rights.

I’m talking about credit card companies bumping their interest rates up, often on a whim, to improve their bottom line. For many of us a small, unforeseen interest rate hike could play havoc with the household budget.

For example a 5% hike on a £5,000 debt would amount to additional £21 every month in interest alone.

How does it happen?

You normally receive a letter from your credit card company which says something like this:

“We’ve recently been reviewing your credit card account. As a result we’ve decided to increase your standard interest rate to 20.95% p.a.”

“But hang on!” You cry, “My current rate is 15.45%!” … What’s going on?

It continues…

“It’s important to us to make sure that you’re on the most appropriate interest rate and so we regularly review your credit card account including your credit file held by the credit reference agencies. We’ve noticed that the status of your credit file has changed. This led us to review your credit history and how you’ve managed other products with us including any loans, mortgages or current accounts. As a result your personal interest rate will be increasing.”

Quite a lot to swallow there so let’s unpack it…

What’s heavily implied in this letter, behind a lot of careful wording, is that the interest rate is going up because the recipient of the letter presents a high credit risk. This is the exact wording of a letter Halifax recently sent out to hundreds of thousands of their customers (including myself). I should point out that I’m not just picking on Halifax here, a number of credit card companies do this.

Apart from the shameful fact they’re trying to increase your debt, here’s what’s wrong with this practice…

Often they’re making a complete shot in the dark simply to squeeze more money out of you. I know this to be true in my case because I happen to have a copy of my credit score which shows that I haven’t missed a mortgage payment or credit card payment in several years. Armed with this knowledge and well versed in some of the tricks credit card companies played I was able to sort the situation out in 2 minutes.

But what if you don’t know your credit rating or your rights?

The problem with these types of letters is that they prey on two very powerful things, fear and forgetfulness.

* Fear that when we hear bad news we simply accept it, go “Oh well” and do as we’re told. This is nothing more than bullying and we shouldn’t tolerate it.

* Forgetfulness (and inaction) – Most of us are busy and have a thousand other things to deal with… work, family, personal matters. The credit card company knows that a) A large proportion of people who receive this letter will not read it or take it in properly and b) A larger proportion still will read it, make a mental note to do something about it and then forget about it until the deadline passes. They win both times.

Unfortunately this kind of thing is happening more and more. The good news is there are a couple of simple things you can do to stop it happening to you. Remember, there are very few situations where you don’t have considerable power as a consumer.

So how do you deal with the problem, stop the interest rate hike and stay in control?

Here’s what to do if you receive a letter announcing an interest rate hike.

1. Contact your credit card provider immediately. Be firm and polite and tell them that you would like to close down your credit card account with them.

2. Insist on the same rate. When they ask you why you want to close your account (which they will) explain to them that you received a letter out of the blue which announcing an interest rate hike. Now here’s the legal bit – if you close your account at this point they have to keep you on exactly the same rate as you’re currently on for the life of the balance. With the account closed you won’t be able to use your card for future purchases but don’t worry, we’re not quite finished yet…

3. Wait and see what they have to offer you. Unless you’ve got a particularly bad credit rating (i.e. if you’ve had a lot of late or missed payments in the past) the adviser on the phone will most likely present you with a new option. Keep your credit card at its existing rate for a guaranteed period of time – free from rate hikes.

Either way by the end of the call you should have a resolution which involves keeping your existing credit card rate for the life of the balance.

The worst case scenario is that you’ll have to cut up your card to get it but frankly your best off out. If they can raise it on a whim now what will they do in 12 months time?

Please leave a comment below if you found this article helpful, or if you’ve encountered a similar situation (and how you dealt with it).

When in doubt with debt it’s best to tackle the situation immediately (that way it can’t get worse, only better) talk to your bank and find out what’s going on. The longer you leave it the less recourse you’ll have for action. You can also contact the Citizens Advice Bureau for free advice. If you want a copy of your credit rating you can get one by post for £2 from Equifax or Experian.

, ,

8 responses to “How to avoid getting ripped off by ‘bumped up’ credit card interest rates”

  1. Hi Tom,

    This was very timely for me as I too got a letter from the Halifax and know I have not missed a regular payment.

    I knew I wasn’t going to settle for it, but now I know exactly how to go about tackling the situation.

    I’m not sure about you, but they told me the rate is not due to go up until July, which means you’re likely to think – OK, I’ll deal with that nearer the time, and then forget about it. Sneeky b……

    Great stuff – cheers

    • Hi Alan.

      Excellent! Let us know how you get on. Yes I think mine said July as well (as you say it gives people plenty of time to put it aside and forget about it).

      Just to give you a heads up when you phone them they’ll probably start talking about their ‘A’ and their ‘B’ customers. ‘A’ being loyal customers who pay on time and they can keep on the special low rate… and ‘B’ being everyone else. It’s absolutely outrageous.

      When credit card companies do this sort of thing it’s nothing more than money grabbing carpet bomb on their customers.

  2. What’s worse is the spread the banks are making on the interest they charge you; they borrow money from central banks at the base rate. Halifax, which is part of RBS does plenty of other stuff that people have a right to be furious about; one story I read recently was that they sold a credit default swap-like instrument to a small business owner as a sort of latter-day ppi/ loan payment protection insurance product BEFORE they would even put her forward for the loan she wanted. She didnt get the loan and she still needs to pay into the contract that she was effectvly forced into. Best thing to do is to pay your credit cards before the roll-over date and if you need to borrow money try zopa or funding circle, atleast you know what you’re paying for there. Seriously, we need to forget these too big to fail bankster clowns and look elsewhere.

    • Excellent point Michael, thanks. I want to cover Zopa and Funding Circle in Insider’s Edge – I think they’re superb platforms both for borrowers and lenders.


            I remember reading about ratesetter YEARS ago in CityAm. You’ve probbably found these already, but didn’t see the ham posting them up here just in case. Or the harm, for that matter. Nice to see google’s big brother cookie monster antics proving useful!! 😛

  3. Once again great stuff Michael. I’m hoping to publish a full article on this in the next couple of weeks – your research has been most useful, thank you.

Leave a Reply

Your email address will not be published. Required fields are marked *