The Single Worst Practice of the Credit Card Industry

Since a massive credit card reform was done in 2009 (the CARD act), credit card companies in the United States have become a lot more predictable, transparent, and just plain better to deal with. For example, the law greatly limits these companies' ability to make unfair rate hikes, to market to those who could have trouble repaying, and increases the amount of time the card issuer must give you to pay after issuing your statement.

However, there is still one bad practice in the credit card industry that you should be aware of. Aside from what the law prohibits, credit card companies can (and do) change certain terms whenever they want to. Here's what your credit card company can do, and what you can do about it.

They can change your interest rateFirst off, the law prohibits your credit card company from increasing the interest you pay on your current balances, unless a promotional rate runs out or you pay your bill late.

However, credit card companies are allowed to change your interest rate from a fixed rate to a variable one, and can raise your interest rate on future purchases as long as they give you 45 days' notice and it's been more than a year since you opened your account. You should also be aware that the CARD act doesn't impose a cap on how high rates can go.

If your interest rate increases along with the rest of the market, this isn't necessarily a bad thing. After all, that's the point of a variable rate. However, if you are unhappy with the rate increase, the law also states that you are free to cancel your account without penalty if your interest rate is going up.

Fees can increaseA credit card issuer can increase the fees attached to your account for any reason, and this is especially common with annual fees.

Credit card companies are competing to offer the most appealing perks to their cardholders, and tend to (at least somewhat) pass on the added expense to consumers. For example, American Express recently increased the annual fee on its Delta SkyMiles Platinum card from $150 to $195.

As long as the benefits associated with the card make the fee worth paying, this isn't such a bad thing. However, if your credit card no longer makes good financial sense to you with the higher fee, it may be a good idea to look elsewhere for a less expensive card that meets your needs.

Your credit limit can be lowered This was much more common in the years immediately following the financial crisis, but a credit card company still has the ability to lower your available credit line at any time and for any reason.

Even though this is less common than it was in say, 2009 when 58 million cardholders saw their limits drop, it still happens. Also, you're not immune even if your credit is excellent. Sometimes banks simply want to decrease their risk level, and one way to do that is to reduce the amount of credit available to customers.

Another common reason is if your account has been inactive for some time. According to, three fourths of customers whose credit lines were slashed on inactive accounts had no other possible triggers on their credit reports (such as late payments, new credit inquiries, or collection accounts).

What to do if you're affectedFortunately for consumers like you, the credit card business is a competitive one at the present time. Many of the big U.S. card issuers such as Wells Fargo and Bank of America are actively trying to build up their credit card businesses. What this means is that the average cardholder has substantial room to negotiate for better terms. If your credit card company decides to increase your rate or fees, or lowers your limit, call the company and ask to have the change reversed. If you have been a customer for a long time and have an excellent payment history, use that information to your advantage.

In today's competitive market, card issuers have been known to offer pretty generous deals in order to retain business. There are enough "0% interest" and low fixed-rate credit card offers available that consumers shouldn't need to put up with any unfair changes, so if your card issuer won't budge, maybe you're better off looking elsewhere.

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Matthew Frankel owns shares of American Express and Bank of America. The Motley Fool recommends American Express, Bank of America, and Wells Fargo. The Motley Fool owns shares of Bank of America and Wells Fargo and has the following options: short April 2015 $57 calls on Wells Fargo and short April 2015 $52 puts on Wells Fargo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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