Money Mensch: Take a swipe at credit card rate-jackers
Every credit card customer wields a secret power to say "no" to any interest rate rises. Yet few know they have this force - better still, once you understand it, you can use it to get yourself super-cheap, long-term credit card rates.
Too many people have been unnecessary victims of rate-jacking, blissfully unaware credit card firms are riding roughshod over them, but I think it is time that changed.
Since the credit crunch began, millions have received letters from the likes of Egg, Barclaycard and MBNA, telling them that the APR they currently pay is about to go up. Sometimes it is a standard rate increase, sometimes it is a bespoke hike.
Yet don't think you need to have paid late or defaulted for it to happen. These days we all have poorer credit scores than we used to because lenders are much pickier about who they lend money to and "rate for risk" pricing applies to existing customers too.
The result can be a nightmare for those unable to ditch and switch elsewhere for cheaper deals (if you can, do - see www.moneysavingexpert.com/balancetransfers).
You have rights – if you stick to the rules
It is crucial that anyone with a credit card knows their rights, but these only apply as long as you have upheld your side.
Being just a few days late with payments, or missing them, can kibosh your powers. It is crucial you don't let that happen. The best way of avoiding this is to set up a direct debit, even if it's only to make the minimum repayment. While I normally caution against that, as it can be incredibly expensive and take years (see www.minimumrepaymentcalculator.com), here it is done as a tactic. By setting up a direct debit for the minimum, you guarantee you are never late - then you should overpay manually by phone or cheque on top if possible.
Reject rate rises: the rules
If you signed up for a 0 per cent promotional deal lasting six months, then after six months, companies can increase your rate to the standard APR. However, there are rules that you can use to fight back. They were introduced as part of an agreement between the last government and the credit card industry, and are structured in a such way that if they are broken you can complain to the Financial Ombudsman and it can adjudicate.
● No rate increases in the first year. And after that if they do increase rates they must give at least 30 days' notice.
● One rate rise per six months. After the first year, they can only increase rates twice a year.
● Rate rises must be explained. If you ask why they increased the rate, it should give you an explanation - though frustratingly they may just say "your credit score".
● No increases for those with debt problems. They shouldn't increase your rate if you have fallen behind with payments for a month or two OR sought help from a debt advice agency. So if you are in difficulty, get help from a non-profit debt counselling agency like Citizens Advice or www.cccs.co.uk immediately.
Although the lender can't raise your rate, it can cut your credit limit to stop you borrowing more.
The big one: you can reject any rise
However, to do it you must agree not to borrow any more from them. This is something explained in their rate jacking letters, but it can be worded in a way that makes it hard to spot, saying something like "you have a right to close the card".
What that means is, provided you don't borrow more, you can repay the card at a reasonable rate. My interpretation of reasonable is that if you have only been making the minimum repayments, you can continue to do so. If you have been paying hundreds a month and want to drop to the minimum repayment, you probably can't.
For example, imagine you have a debt of £3,000 on a credit card charging 18 per cent with a £5,000 limit. If it wants to increase the rate to 25 per cent, reject the increase and your rate stays at 18 per cent, but you can't borrow any more money, so your £5,000 limit becomes irrelevant.
Use these rules to lock into cheap deals
A few years ago, hosts of "life of balance" cards existed, whereby you could shift existing debts to a card where the cheap rate lasts until all the debt shifted has been repaid. These were great for those who needed longer than the year or so 0 per cent periods often given.
Few of those now exist, but you can use the rate-jacking rules to create them. Two credit cards, Barclaycard Simplicity and Halifax Easyrate, offer standard APRs of 6.8 per cent and 6.9 per cent.
However, these are "typical" rates so that only about two thirds of accepted applicants will get this rate. The rest may be offered a higher rate depending on their credit score.
These are variable rate deals, meaning the credit card company could choose to increase them. But the rate jacking rules now mean they can't do that in the first year and you can reject future rises as long as you don't borrow more. In effect, this means that you can shift debt to these cards and lock in permanently at those cheap rates. Yet of course the key is never miss a repayment to do that.