Sep 06 2008
Bank of America Raising Credit Card Rates
I received an interesting note in with my BoA credit card statement today. Bank of America has seen fit to change my interest rate from a fixed 10.99% to a variable APR. Interestingly they have seen fit to tie me to the highest level of Prime from the last quarter plus 20.99%. From their current standards that puts the new interest rate at 25.99%. I have the option to write to them to refuse the new terms and can keep the current rate to pay off the balance as long as I don't use the card.
A note about why I have this card. About 14 months ago I received an unsolicited offer from Bank of America offering me a 0% interest rate for 6 months then a fixed rate of 10.99% thereafter. I figured what the heck. I'll use it to consolidate my cards that have balances on them. The 0% rate added to the fixed rate of 10.99% seemed attractive enough to kick it off. I went ahead and consolidated the cards to BoA.
In the past 14 months I paid down the debt and never used the card at all. After all it was solely for debt consolidation and not for use. I swore off credit card usage around 2 years ago after using them a lot for some home renovation.
I will say I was surprised to see a rate increase. I consider myself savvy enough to know when to expect one. Late payments on any credit card, not just with BoA, can trigger a rate increase. Going over your limit on any card can do the same as can a change in your credit score. There hasn't been any real change in my credit score over the timeframe except a slight lowering which I attributed to the fact that I consolidated by debts to one card and was near the maximum credit limit.
After receiving the notice of the change in APR I looked around on the Internet for any explanation. I found it. Apparently BOA has had some serious setbacks. First, they are losing money from their mortgage business. In addition their default rate in the Credit Card business is rising. Raising rates on current customers helps them in two areas.
The first is that it helps bring more money in for their bottom line. The more than doubling of an interest rate to 25.99% would more than double the interest payments on the money I have outstanding. that is, if I planned on accepting the rate hike. I don't.
The second is that it prevents people from charging more if they do accept the new rate. This means they are maximizing the reward for the risk. Those people will be using the Bank of America credit card and paying the higher interest rate.
Here is a link to the article about this happening to others starting in Feb.