3 common ways your credit card agreement can change
Your credit card agreement isn't set in stone: your issuer could lower your limit, raise your interest rate or close the card altogether. If you aren't prepared, you could be thrown for a loop. Luckily, if the change is to your detriment, you must be notified, so you can prepare.
"Credit cards aren't like mortgages, with interest and terms that are set and can't change until they come to renewal," says Andre Bolduc, an Ottawa-based expert and senior vice president at BDO Canada. "With credit cards, [issuers] can withdraw it at any time, modify interest rates or limits ... people who use their cards a lot and carry a balance maybe don't appreciate how vulnerable they can be if things don't go well. They don't even have to give you notice sometimes and you have to make do."
Here are three common ways your agreement can change, and what, if anything, you can do.
1. Credit limit change
Canadian regulations bar issuers from increasing credit card limits without informing you; you must authorize the addition. Similarly, if an issuer plans to decrease your limit, you must get at least 30 days' notice in a letter or email, says Richard Moxley, author of The Nine Rules of Credit and spokesman for eCredit Fix. But you don't get a say -- it's going to happen, like it or not.
"If you don't check your mail for a [decrease] notification and keep spending, you could face over-the-limit charges on top of interest," Moxley warns. Even if you aren't near your current limit, a credit limit drop could damage your credit utilization ratio -- the amount of credit you use compared to how much you have available. That ratio makes up 30 per cent of your credit score.
Your APR can change for a couple of different reasons -- maybe you have a promotional rate that ends or you miss a payment, causing
your issuer to raise your interest rate. But sometimes, there is no rhyme or reason.
If you're drowning in credit card debt, even a slight rate rise could quickly lead to major problems, especially if you can barely afford a minimum payment.
"As a consumer, you don't have any recourse other than talking to your credit card issuer to reinstate your limit and resolve the issue," Bolduc says. "You can pay out the card if you don't like the terms, but a lot of people don't have this option. You can get a card with a lower rate and transfer the balance, but that's not available to everyone who's stressed financially, either."
or handing off your account
Your credit card issuer could decide to close your account for a couple of reasons. First, new algorithms or criteria may disqualify you as a responsible client. In other words, it's number-crunching conducted by computers.
Or, creditors may choose to close your account if you're, say, missing payments or have maxed out the card, Moxley says. Basically, if for any reason, at any time, you don't seem like a responsible candidate anymore, issuers can close your account.
Sometimes, your original creditor might not close your account, but may hand it off to another financial institution. If so, you'll receive a notice that the other institution is taking care of your account. They're not asking for your input, Moxley says -- they're just telling you it's going to happen. Once your account transfers, you'll have to follow the new company's terms and conditions. It's entirely possible that the new handler will have different criteria than your original creditor and will close your card.
for a disadvantageous change
The Financial Consumer Agency of Canada (FCAC) says your issuer has to provide you with details of changes in writing at least 30 days before the changes go into effect. There are exceptions, though: if the changes benefit your cause, advance notice isn't required.
"However, the changes have to be disclosed to you in the next statement you receive after the change is made," the FCAC website states. These exceptions include an extension of your grace period, a decrease in the interest rate, a decrease in a charge not related to the interest rate or a change to optional services. Cards with variable interest rates fall under this category, too.
For changes that aren't to your advantage, though, you can stay on top of things in a few ways:
- Read your terms and conditions: When you sign up for a credit card, familiarize yourself with the agreement. At the very least, get to know the interest rate, your credit limit, your due date and any grace periods your issuer may extend to you. Bolduc says issuers typically dole out a new set of agreements annually. The onus is on you to acquaint yourself with any changes. Your agreement even says, in some capacity, that your lender can alter the terms and conditions as it deems appropriate.
- Stay a step ahead: Make sure you're on top of your monthly payments and try not to carry a hefty balance so, should anything go awry, you're able to pay off the debt in its entirety. If that isn't feasible, stick to using only 30 per cent of the capacity on your card -- that way, if your limit takes a dip or your card is closed, your credit utilization ratio won't take too hard a beating.
- Don't throw away any messages from your creditor: Important communication from your bank or lender could get lumped together with the promotional mail you throw out. Get into the habit of opening all letters and emails from your credit card issuer -- if changes are heading your way, you'll be in the know instead of being caught off guard.
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