"Credit limits are reduced to levels lower than the current balance, triggering over limit fees and requiring a large "balloon" payment of the over-due amount. This practice also puts the consumer at risk of being hit with a penalty interest rate."

I don't see how such a thing could ever hold up. I mean, yea they could lower your limit, but then you'd just never use the card and pay it off as you were before. How could they hit you up for over-limit penalties and the like, and have it hold up to legal scrutiny?

Or is it just a matter of people who don't fight them..?

I'm really amazed that our government hasn't imposed any regulations on this industry. But then, it only affects the "little people" not the wealthy or corporations. and I'm sure the credit card industry pays lobbyists, and through them, congress, quite well.

The survey just lists what a card company can do vs. what they actually do.

Another thing that fails to be mentioned most of the time is that these things are not materialized out of thin air but are listed, albeit confusingly, in a contract.

@Jevia:

You have to realize that these are unsecured credit lines and that banks are just trying to minimize risk. I don't see anything wrong with that.

OK, yes, credit card companies can be pretty nasty, and a credit card in the hands of someone who doesn't know what he's doing can be a very dangerous thing, but for someone like me who pays off his balance each and every month without fail, they're extremely convenient. So I wouldn't call them evil, necessarily.

Yet another reason to NOT use credit cards, even though the Consumerist always suggests to use one to protect yourself. That protection though comes at a price, and you have to ask yourself: is it worth it?

Is it worth it to pay interest and possibly be subject to lame practices like jacking your interest rate for no reason or for universal default, or lowering your credit limit to below your current balance just to have the ability to issue a chargeback instead of dealing with a lousy merchant yourself?

I say hell no. I'm a big boy, I can fight with a merchant myself if I have to, and I don't have to worry about magically changing due dates or interest or universal default.

@aaron8301: I don't ever pay credit card interest, and I use them for everything.

@aaron8301:

Is it worth it to pay interest to get chargeback protection? No. But it is worth it to use credit cards and pay off the balance in full, and thus get all of the benefits and none of the costs.

I use Amex Blue Cash for most of my purchases, with a Chase Freedom card for places that don't take Amex. I get cash back from Amex, which usually ends up being a few hundred bucks a year. I've only had to use chargeback protection once for a minor amount, but I did like that Amex called me about fraudulent charges when my number got stolen somehow, and that it wasn't my actual money that was stolen.

Credit cards are a tool, like a hammer. If used the wrong way, like to hit someone over the head, hammers are bad, but they can also build beautiful houses.

Another happy credit card user here. Not that I think it's because the companies are so wonderful, and I keep wondering if they're going to cut off my "deadbeat" account, but between two different cashback cards and several partner deals with places I regularly shop, plus the float through the month, using credit cards genuinely saves me money. If you pay off the balance every month, keep the use to an amount you can do that with even if they change the rules on you, and keep your eye on the account, it can be well worth it.

I think there's a lot of benefit here in aggregating all the information on who are the asshole credit card companies and which ones work to provide good service, and publish it far and wide. The banks are more vulnerable than ever to having their names dragged through the mud. Maybe this is one situation where effective consumer advocacy might leverage business practices.

@Jesse: There's a difference in minimizing risk and screwing over people just cause you can. if they were worried about risk, they wouldn't issue cards to dogs and babies, and the process would require much more than just entering some information on a website.

So what do you do when a credit card company sends you a letter canceling your account because of "inactivity". I don't really care about the card - since obviously I wasn't using it - but how do I prevent this from being a bad thing on my credit report?

@epd: I wish that had happened to me. It took me SEVEN YEARS to get MasterCard to close my account. The worst part was that even though I moved several times in that timeframe, they kept sending ACTIVE cards to my original address.

Thanks, Consumerist. I'm never getting a credit card Bank of America, Chase, Citi, American Express or Capital One.

@aaron8301: Dude, credit cards are a wonderful convenience if you're a good spender. First, they let you collect interest in the bank. Second, you get bonuses. My BP Chase card is awesome. You just need to be a good spender.

@Dabigkid: Irony.

A key problem is contracts are not in written in language most people can easily understand so people really don't have a clue what they are signing on for. It would be helpful if some of the "key points" of the contract were summarized up front but of course that would never happen because then companies couldn't get away with their dirty tricks by burying them in document.

@Chaluapman:

No, if the card companies were really worried about risk, then they would make all credit debt secured. You would have to back up your credit line with collateral.

The very rare instance of issuing credit cards to babies and dogs is a completely different topic than the mechanisms employed by credit card companies to reduce default risk.

Again, just the fact that they CAN doesn't mean it is normal practice.

"As consumers pay off large balances, creditors slash credit limits so that the balance is always close to the credit limit."

Seriously? I've never had that happen. When I was deepest in debt, they would always raise the limit to let me keep digging myself in. Once I paid them off, they all left the ridiculously high limits in place. In fact, I just realized earlier today when going over the terms online, one card which I've had a zero balance on for a while now, they just randomly raised my limit for no apparent reason. While my credit rating is better now it's by no means fantastic. I really think they just expect me to get another shovel and start digging once more.

I've only ever had one card lower the limit on me, ever, and that's probably less due to incisive banker wisdom than the fact that they went through sixty billion acquisitions and have been staffed by a random selection of incompetent baboons at each successive bank. And boy did they miss the boat on that one -- that was *before* I wound up in debt, so they totally could have had beaucoup interest rolling in. Ah, sweet irony!

@Jevia: I'm pretty certain all the credit card companies are careful to not do these things to senators and congressmen.

I'm also certain that these companies are funding some very lavish lifestyles for an army of lobbyists. Doing the math here... No, I don't see congress taking an invasive interest any time soon.

@Jesse: Reducing the credit line after the card holder pays down a large balance could be construed as simply reducing risk. Reducing the credit line of a cardholder in good standing from somewhere above the current balance to a figure BELOW the current balance, followed by charging over-limit fees and raising the interest rate to a penalty rate is predatory behavior.

@The_IT_Crone: Well unless I am mistaken, MasterCard doesn't issue actual credit cards. Banks do.

The folks talking about how you just need to be a good spender must have missed many news stories about credit-card issuers jacking up insurance rates for the thinnest of reasons - for example, because some OTHER company issuing you credit claims you were late with a payment.

Whether or not it is 'normal practice' kind of avoids the point that it is something they can do, and have done.

There used to be a song called, 'mother has a hole in her arm where all the money goes'. We have been addicted to credit by the banks for the last fifty years. True, credit is useful when we want to buy a car or home, but the notion of credit has been expanded to horrendous preportions. We have been sold a bill of goods about credit, and we are paying the price for it. Credit cards are simply a means for the banks to extract money from you. You pay them whether you pay off your balance or not. I suppose that the ideal case for the banks would be if you just sent them your pay checks, and they would give you what they think you could live on. Credit cards might be useful if the government would impose usury laws and other restraints on them, thus insuring us a even playing feld. What we see today is a vast racket making the cosa nostra's loan sharks seem like guppies. Remember the banks have given us the housing crash, and have in general promoted polices that are turning our country into a third world basket case.

I agree in spirit that credit cards are evil, but the idea of using debit for online purchases scares me.

"Credit limits are reduced to levels lower than the current balance, triggering over limit fees and requiring a large "balloon" payment of the over-due amount. This practice also puts the consumer at risk of being hit with a penalty interest rate."

I frequent financial forums and I have never seen that happen. I have no idea what it is doing on some sort of official list. They do sometimes drop your credit limit above your balance (when you are flagged, properly or not, as a risk), and then when people add new charges to their card it can sometimes go over the new limit, but they do not reduce your limit under your current balance (unless they close your card). And even if they did, I would be amazed if they had the balls to try and assess an overlimit fee. That is a lawsuit waiting to happen.

Meh, my expectation from credit card issuers is that they are going to do every dirty, underhanded, sneaky thing possible to screw you out of your money. I learned that a long time ago (thank you capital one for the valuable lesson).

IMO the only good/safe way of using a credit card is for the convenience & reward programs. ANd pay it off in full every month. That's the way i use mine.

Drop my credit limit?, fine... dont care, jump up my interest rate into the twenties because I was late turning in a library book?, fine... dont care. Because I dont spend more than $600 a month on average & keep no running balance anyway. DO your worst evil credit card companies!

@forgottenpassword:

Oh . I forgot to add.... pay the credit card off as soon as you get the bill.

And if you dont have some emergency money in a savings account to fall back on....then I believe you shouldnt be using a credit card.

@forgottenpassword:

If you're going to do that, and want to make (closer to) sure you're safe:

Don't go paperless. You won't get any notification of rate changes or (intentional, random, frequent, and unnecessary) payment due date changes (designed to make SURE you can't pay it off on time every month).

And you'll care if they see you spend 600 dollars, and drop your credit limit to 500 bucks.

Even if you're careful, you CANNOT trust many card issuers.

@Jevia: I am not at all surprised by this. The Office of the Comptroller General is the gov't oversight for these institutions, and they are squarely in the back pockets of the banks and CC companies.

It's bipartisan apathy and/or greed - your gubbamint at work.

Here's a novel idea, don't use a credit card. Pay cash. Now that millions of Americans can't use their houses as an ATM card any more, they are resorting to the next thing iin their wallet; their credit cards. At least the mortgage industry has some type of collateral in the form of a borrowers home, but with credit cards they do not have that and as more and more people start defaulting on their credit cards, we are going to see a situation that is far worse than the housing collapse.

We need to stop relying on borrowed money and start saving. If you don't like the terms of your credit card then don't use it.

My credit union issued MasterCard has an agreement that is only two pages long and in type that is actually readable. I know exactly what they can and can't do and it isn't in legalese (or creditcardese). Deal with a decent lender and you will be treated decently.

To an extent, I can see the point of the CC companies' argument that they need flexible terms. The financial situation of a card user can change very quickly and they should be able to protect themselves from that. That said, I don't think they should change the terms without notice except for extreme situations - i.e. they find out the card user has defaulted on every other line of credit or something.

That said, since I don't get anywhere close to my credit limit, and I (almost) always pay my bill in full every month, the only term changes that effect me are when they change the rewards structure. I can't really blame them for changing the rewards on me, since I'm not exactly a profitable customer. Other than my rewards structure, the only changes they've made to my card w/o me asking is to increase my credit limit.

does anyone have an AmEx charge card? Is that any better?

@Jesse: No, they're trying to maximize their profit. As the current economic meltdown is repeatedly showing, minimizing risk is more of an after thought once they make as much money off of their victi customers as possible.

@dragonvpm: There is a fine balance between risk and profit. Historically (and currently), credit card companies are punishing customers who always pay their balance in full by increasing their rates. Obviously, if the customer continues to pay off the balance every month, then this isn't an issue. But this often coincides with changing the billing cycle so that the customer is caught off-guard and is charged interest.

They reward customers that carry a balance by increasing their credit limit.

More and more, society punishes those who do things right and rewards those who make poor decisions. It only encourages me to take out bad loans and just be finacially irresponsible.

@lukobe: That's the key - if you PAY THE BALANCE EVERY MONTH. Lots of people don't, particularly after having bought some big-ticket item like a plasma TV, or in my case, a pellet stove. In my case, that purchase went on another card with a 0% rate for a year. If you're running a revolving tab, you're asking for it.

@lukobe: And your responsible behavior is rewarded at the credit card companies by labeling you a "deadbeat"! They just get to keep the merchant fees from your purchases but they get no interest payments.

@ckaught78: "If you don't like the terms of your credit card then don't use it"

You're completely missing the point. You could have a balance governed under a certain set of terms which are okay to you, but then the CC company can change any of the terms and retroactively apply them to that balance. And let's be realistic here. You can't just use cash for everything in life. I see nothing wrong or irresponsible about putting something on a credit card if you're willing to pay the interest rate. I can understand the company changing the terms and then saying that any new charges after your notification are going to be affected, but that's not the case.

I wish I could use their argument against them..."Due to current market conditions, I am only going to be paying 3% interest on my balance."

@mythago: Speaking for myself, what I'm saying is that I currently find using credit cards to be a benefit, and that I keep track of things enough that I won't be hugely inconvenienced by ceasing to use them if they stop being advantageous. The companies do what they can to make it unprofitable for the user and profitable for the company--the fact that some of us use them profitably doesn't mean that's not true, but the fact that the companies will take advantage when they can doesn't mean that a card can't be used profitably.

I've paid the balances off on my cards for years. The punishment I have received includes increased credit lines and low interest rates.

I look at my situation when reading these articles and think that card companies are so bent on screwing the consumer that I should have about a $500-1k (instead of 6-18k) limit on all my cards with an 18% variable rate. I am obviously too responsible for favorable credit terms.

A few facts:

Credit cards exist because they are *extremely* profitable. Major retailers now offer them and in many cases, it is now the most profitable part of their business.

Studies have shown that people spend MORE when they use credit cards.

Even if you pay off your balance in full, the banks make money off of transaction fees. Those fees (typically around 3%) are built into most everything customers purchase today - you just don't see it.

Late fees and charges over the credit limit are wildly profitable. Once a consumer is lured into credit card debt, it's easy for them to get into the 30 year plan where they only pay the minimum balance. This is a banks dream scenario.

If you are married and your spouse gets a credit card in their name, YOU are responsible for the debt as well unless you jump through a few hoops soon after the credit card is issued.

Most transactions with a 90 day same-as-cash promotion are not paid off within 90 days. Retailers feed off of this type of credit card promotion.

Opinion:

All-in-all, credit cards are a *really* *really* *really* *really* bad deal for consumers. American society has taken the bait and I predict that credit card use during this century will be viewed in a very negative light by future historians.

For most credit card companies it is about maximizing profitability while balancing risk and reward. As charge-off rates increase, banks need to reexamine their risk models, which include interest rates and fee structures, and adjust accordingly. If a credit card issuer only marketed to and opened accounts for people with 800+ fico scores, they would make very little money and very few people apply. They know there are going to take losses, so they need to figure out how fard down the bucket they can go and still be profitable.

Now I agree, if you are going to increase someone's rate or lower their line, then they should be required to inform the customer beforehand. A bank can't lower your limit to less than your balance and start charging you overlimit fee's. It may happen on occasion with some of the more shady operations, but you will rarely see this from your big institutions. There are also regulations in place to limit negative ammortization. You may have noticed a few years back that minimum payment requirements changed and thus increased. Some people complained, but this was done to fix a problem.

And for those of us that pay in full every month and never carry a balance, the bank still makes money off us with interchange fee's. They don't make as much as they guy carrying a balance, but they do make some. Banks know how profitable you are and have models that will predict how profitable you are going to be from day one.

I've had one credit card in my life, and it's since been discontinued. I hit some rough times coming out of college, and put up a small debt, and once I finally paid the thing off I never reapplied. I've been using a debit card ever since.

However, lately I've been thinking that I should have one for the extra consumer protection it offers. But even if I go in with the intent of paying the full balance every month, the power credit card companies wave over you is intimidating. Does anyone know where one could find a simple card that is low in evil?

Well, that's just more stuff to add to this list: [redtape.msnbc.com]

@AceKicker: I did the same thing. After finally paying off some dumb credit card debt from college, I swore the things off for about five years. About a year ago I decided to get back into the CC game, both for the added protection and the rewards.

I don't have any low evil recommendations, but here's the trick: credit cards only have power over you if you use them irresponsibly. Yes, that's a big "if." But if you're careful with your spending and scrupulous about paying off your balance, you can get a CC from Satan himself and not worry.

@floraposte:

You know, I think about that too. I pay off every month and they raise the limit and lower the interest rate. I keep wondering: "when are they gonna get sick of me?"

My guess is, they play the broad odds. They are waiting for me to NOT pay the full balance due to say a hiccup in my financial well being (loss of job, medical etc). Even if i need to pony up to fees and interest for only 6 months, I bet they mucho profit from all the years i "screwed" them paying it off.

It must be simple math (on a broad scale). X% of "deadbeats" will need to ride their credit at some point. We still come out ahead even though "Y%" of deadbeats never fall behind.

If this were not the case, deadbeats would be booted for sure.

@linus:

I have an amex card. It used to have a $25K limit. I was laid off for 9 months and was not late and missed no payments. I missed a gas card payment ($13) and the GC reported it. Amex lowered my credit line and raised my interest from around 9% to 17%, I just recently had a payment to amex missed because I scheduled a payment through their website and the payment did not get made, even tho I called them they said I did not make the payment. They lowered my limit to $500 below my current balance, and increased my interest rate to 27%. When I told them what happened at the website, they all but called me a liar. However, they told me that they will not charge an overlimit fee the first month since they were the ones who lowered the limit. Nice.

@ohiomensch:

actually as per my reply to another poster above, ohiomensch's post is case in point.

once a crack appeared they aggressively go for the throat and bleed out their losses from when ohiomensch paid everything perfectly.

THIS is the risk of credit cards. Responsible spending and paying off is just a PART of the whole. One or two missteps, and that "rewards" card you love bites you in the ass.

@aaron8301: When you use a credit card, you're using someone else's money and that's worth it for me. I'd rather have a fraudulent transaction hit one of my credit cards than one of my debit cards.

Also, you can get some freakishly good offers from various credit card companies. I did some home renovation a few years ago and instead of getting a HELOC, I tossed it on a credit card and then transferred it to another card at an interest rate so low that by the time I'd paid it off, if I'd gone the HELOC route, I would have spent nearly a thousand dollars more in interest and fees.