Higher Rates on ALL Your Cards a Risk if Payments Missed on ANY Card

Don Mitchell was surprised to learn his credit-card company reserved the right to boost his interest rate to nearly 25 percent if he fell behind on payments, not just to it but to any creditor. Buried in the fine print of his Citibank card agreement was a clause saying customers who missed payments to "any other creditor when due" would be in default. "How can they do this legally?" asked the Mesa man, who decided to cancel his credit card in protest. The practice, while not widely known, is not only legal but fairly common among credit-card issuers. "You become a higher risk (by not paying other creditors), so some companies will raise your interest rate," said Tracey Mills of the American Bankers Association. Not only can firms jack up rates or put you in default for the usual reasons (filing for bankruptcy, exceeding your credit limit, paying with a bad check or missing one of their payments, for example) but issuers can get nasty if you don't make required payments to someone else. "Many credit-card agreements are now written so the company can raise your rate if you are late on any of your bills, not just their credit card," bankrate.com warns.

Such interest rates can easily exceed 25 percent, and such incidents will show up as a demerit on your credit reports and credit scores. Worse yet, such problems can arise through no fault of yours if a creditor makes an error, said Richard Le Febvre of AAA American Credit Bureau in Flagstaff. Credit-card companies learn about payment problems, whether correct or not, by periodically checking customer credit reports. "Even if their account is paid as agreed but they see a delinquency elsewhere, the company will send the customer a notice increasing his rate from, say, 9.9 percent to 18.5 percent," Le Febvre said. Although credit-report errors can be corrected, assuming you spot the problem, doing so takes time. Meanwhile, the credit-card firm may not give you the benefit of the doubt while you're disputing an issue with another creditor. "You're guilty until proven innocent," Le Febvre said. Floyd Bybee, a Tempe attorney, tells of a client whose credit report had a false bankruptcy listed. The man spotted the error when he applied for a home loan and thought he had the problem fixed prior to closing. But shortly before the deal was set to close, a mortgage broker pulled up the buyer's credit report and spotted a reference to the inaccurate bankruptcy notice. The man lost out on the home and faced other credit problems, Bybee said. A lawsuit over the error is pending. To avoid a credit-card default and higher rates, bankrate.com suggests you periodically review your credit reports and credit scores. Also, pay down balances as much as possible, to cut the risk of missing payments. Mills suggests contacting your credit-card firm to explain any disputes you have with other creditors. And you should familiarize yourself with the possible dangers, which means reading the fine print in your credit-card agreements.