Will Saying No To Interest Rates Hikes Mean Credit Score Loss?
As the Credit CARD (Card Accountability, Responsibility and Disclosure) Act’s full activation comes nearer, credit card companies are getting more anxious to secure their profits and get rid of non-performing credit card accounts. As a result, credit card holders are seeing a lot of credit card interest hikes, available credit being cut down to very low levels and interest rates being moved to variable rates. These are just a few of the things that credit card companies are doing to keep their profitability up despite the slow economy and the limitations of the Credit CARD Act.
Unfortunately for credit card holders, many of the things that credit card companies are doing to turn a profit are hurting them badly. One of the worst is interest rate hikes. Nowadays, millions of credit card holders are seeing their interest rates jump several percentage points. Most of these card holders are those who have balances in their credit cards.
Due to the economic crisis, many American consumers are finding it difficult to pay off their debts and are therefore carrying credit card debts every month. A large number of these credit card holding consumers are doing their best to pay off their balances in order to keep their credit cards and avoid seeing their credit scores drop lower. Unfortunately, credit card companies are seeing no distinction between card holders who are trying to pay off their debts and those who are not.
When credit card companies raise their interest rates, credit card holders who are trying to pay off their debts suddenly find themselves trapped. According to the rulings of the Federal Reserve and the Credit CARD Act, cardholders who are notified of term changes in their credit cards have the right to reject those changes for their existing balances. Unfortunately, rejecting interest rate changes usually means the closing of the credit card line for most cardholders.
Cardholders who want to opt out of interest rate hikes are usually intimidated by the possibility of having their credit cards canceled. One of their biggest concerns is the effect it will have on their credit score. They are worried that the closing of the account will have a negative impact on their credit score. According to Craig Watts, FICO public affairs director, “A person’s FICO score is influenced by everything in the person’s listed credit history, so the impact of a change to one account will be strongly influenced by the other information on her credit report”.
To clarify, the closing of a credit card is not the main factor that will affect a cardholders’ credit score. It is the ratio between their balance and the available credit. Watts is also quick to point out that the closing of a credit card line will not have any effect on the duration of a credit cardholder’s credit history.
