Credit Score Articles

Credit card deals tougher to find thanks to new laws

Many consumers with great credit scores have, in the past, been able to negotiate better rates on their credit cards simply by calling their lender and asking for them.

But those days, it seems, are gone thanks in part to the Credit Card Accountability, Responsibility and Disclosure Act passed a few months ago, according to a report in the Christian Science Monitor. Credit card companies are able to raise interest rates at will because the Credit CARD Act does not place a cap on them. As a result credit card companies hold the advantage over borrowers who want to decrease their interest payments.

The Monitor says that the difference between the prime rate, which currently sits at 3.25 percent (its lowest since 1955) and the average credit card interest rate of 13 percent is the largest gap in six years, and is only likely to increase as credit card lenders seek to make up the profits they will lose thanks to the prohibition of large fees and other money-making practices that are now illegal.

So when borrowers who have become accustomed to getting a new rate just by asking make a call these days and find themselves denied, it's because lenders now hold all the cards. The Monitor said that even the threat of transferring a balance from one lender to another usually isn't enough to persuade the company anymore because more are raising their transfer fees as well, thereby reducing the incentive to transfer the funds.

One expert told the Monitor that lenders might even cut limits for borrowers who pay down too much of their debt at once in an attempt to lower their rate, which effectively reduces the amount the company will receive in interest payments. Instead, consumers should make payments of $500 to $1,000 to show that they intend to make significant contributions toward the debt without eating too deeply into the company's profits from interest. Even then, the expert warned, that may not be enough to convince the lender to negotiate lower rates.

The recent changes for credit card companies enforced by the Federal Reserve will likely only increase these problems. According to a report from Reuters, the Fed is likely to raise its short-term rates in the near future, and that could send credit card interest rates even higher or cause banks to add annual fees that have not been outlawed by the Credit CARD Act.