How would you react if you suddenly find yourself held hostage to your credit card? You could well find it happening sooner than you think, and exemplary card users who have never had a late payment in their lives to blot their copy books are just as likely to fall into the hostage trap as those who are struggling to make the minimum payment. New credit card charges are on the rise and can leave you trapped.
Many people have nurtured their credit scores into the top range realising the all round benefits of using their credit cards carefully. Their credit card use represents their credit footprint and is the key to lower mortgage interest rates, preferential interest rates on loans, and lower insurance premiums. Their dealings with the credit card company need only be minimal, paying the balance off in a timely fashion each month, never incurring interest charges or late payment fees.
Others are careful not to carry a balance for too long and to always meet the minimum payment on time. Some just use the card from time to time so that its use is recorded to bolster their credit score as it has been held a long time and thus is Fico scored favourably. No fees are paid for having or using the credit cards, but changes are afoot which do not bode well for such careful card use.
Since 2009 credit card issuers have been busy planning new charges to levy, to make up for the shortfall in charges they can now expect to receive since the credit reforms went into place in February 2010, making hidden charges more transparent, and capping other charges which were out of control. New charges are introduced with new products but the practice does not stop there.
Existing customers are facing charges for services which were previously uncharged, and unless the card company agrees to waive them after a persuasive chat, the credit card holder is left either paying the fees grudgingly, or walking away and cutting up the card. The logical thing is to do the latter, but it involves the hassle of finding a new credit card as well as the very real threat it brings of having a detrimental effect on that carefully nurtured credit score.
Closing a credit card account can have a negative impact on your credit score, especially if it is a card of long standing which reflects the length of your credit history. The customer can find themselves caught hostage like to the credit card company, who knows if the customer walks away they face lowering their fico score, and if they stay they end up paying for the privilege.
The credit card holder needs to watch closely to see which possible new charges are gradually introduced onto their previously free credit cards. It may start with simple charges such as paying for printed bank statements, not so subtle charges which are only applied if you fail to spend a certain amount of dollars annually through the card, or the sudden introduction of annual credit card fees.
You can be prepared by ensuring your credit score is so high that you have the option of cutting your card without it making too much impact on your score and by preparing to persuade the card company to waive any such charges. The companies are relying on the fact that they have their long term customers trapped by new charges, but beware if you start to pay them then all you are doing is granting the credit card issuer a mandate to introduce more, or increase the new ones.