The thing about financial crises is that they never fail to affect everyone. Just because your entire investment portfolio didn't implode when the dotcom bubble burst doesn't mean that you weren't laid off like thousands of other people. Didn't get sucked into a subprime mortgage? Lucky you. You still need to watch your back, because your fiscal responsibility doesn't mean that you're safe from the crisis fallout.
Our economy is in the midst of a serious slide (bordering on a full-fledged recession). The causes for it are numerous, but the subprime mortgage crisis is causing some of the most accute problems.
One of these problems is that your credit card company might decide to raise your interest rates. How is this different from the way credit card companies usually behave? The problem is that now, credit card companies are going to start raising interest rates for customers with an excellent credit history.
Why? Because banks are hurting financially. Their problems are two-fold and causal:
- Banks are losing millions on defaulted subprime mortgages.
- Americans have been running up huge credit card bills in the past few years, with the assumption that a home equity loan could be secured to pay off the personal debt. Now that home equity loans are difficult to get, credit card delinquencies are on the rise.
This means that banks need to make some money, stat. How do they plan on doing this? They're going to raise interest rates on new and existing lines of credit and charge you even more in junk fees.
It doesn't matter to banks that you're a good customer with a good credit standing. What matters to banks is their bottom line, and the only way they can think of to prevent more massive financial losses this year is to rip off their remaining customers. The result is that banks are looking for reasons to consider you an "at-risk" customer.
Traditionally, at-risk customers are usually customers who run up a huge debt, pay late, only make minimum payments (although this is a tough one, as banks also LOVE you for only making minimum payments), or who have delinquent accounts. But now that banks and credit card companies are faltering, they're willing to look for all kinds of other at-risk factors, such as:
- Paying for necessities, like food, gas, or your mortgage, using credit.
- Buying items that aren't considered high-quality, like retread tires (that's right - according to Robert Manning, your credit card company is monitoring your purchases and will raise your rates if they think your purchases indicate that you are entering a time of financial difficulty).
- Paying your bill too close to the deadline.
This is bad news for people who buy everything on credit in order to earn air miles or other bonus rewards. It's also drastically unfair and an incredible invasion of privacy. It's also another example of how we all end up paying for the collective financial stupidity of a few rogue investment bankers and mortgage lenders (yeah, I'm looking at you, Countrywide).
Although you are always supposed to keep an eye on your credit rates, be especially vigilant in the comings months - check every statement for bogus fees and unnecessary rate hikes. You may consider not purchasing items like groceries with a credit card for the considerable future. Be sure to call and harangue your credit card company if they try to peg you as at-risk despite a clean payment record. Try to pay your credit card bill at least three days in advance of the due date, if not significantly sooner.
Tedious though it may be, close monitoring of your statements can save you hundreds of dollars in the long run.
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