Q: Chase raised my interest rate by nearly 4%. I can’t figure out why because nothing has changed with my credit that I know of. Do you know why this would happen? Have you heard anything about a Chase interest rate increase going on during 2013 or for 2014?
A: It’s hard to say exactly why you experienced a Chase interest rate increase, as there are so many risk factors that banks like Chase look at to assign rates, but I can say this…
Ever since the “The Great Recession” the credit card industry has changed the way they lend money. Years ago it was possible to get absurdly cheap interest rates (even for those that had no business having a credit card in the first place), but when the credit crunch went down, even many of the most creditworthy customers defaulted on their card debt. Because of this, credit card companies incurred massive losses for several quarters in a row during that dark period. These days they’re still a bit gun shy when it comes to lending money and they never miss a beat in terms of jacking up rates when they sense something is amiss with someone’s credit risk.
Of course the worst days are behind us now, but they banks now realize that a financial disaster of that magnitude is possible. In turn, all banks (including Chase) have had to re-evaluate the cost at which they let customers borrow money.
Furthermore, the credit card reform has made it much harder for issuers to raise rates on customers when and if their risk profile change. Unfortunately, the consequence of this has inadvertently been for banks to raise rates across the board slightly for everyone, since they may not be able to raise them when a customer’s credit score nosedives (like they used to be able to do at any time for any reason). Technically, they can still jack up rates at will, but they have to give you at least 45 days advance notice before doing so and you can always opt to not accept the change, close the account and pay off any outstanding balances under the old interest rate.
Although I have no way of knowing, I speculate these things may be the reason for your Chase credit card interest rate increase. But doing so is something all banks and credit unions have done, not just Chase.
Are credit card interest rate increases a blessing in disguise?
Obviously if you have been slammed with an APR increase that you can’t afford, it’s unlikely to be blessing! However what I am referring to is the credit card industry as a whole… perhaps we had cheap credit for too long (after all, that is what built us up to the financial meltdown). If there’s any benefit that comes out of paying more for borrowing it’s that it may help us avoid getting into another financial tsunami in the future.