Tuesday, October 21, 2008

My Credit Crunch

I was surprised to open my Advanta credit card statement to find they had tripled my interest rate to 27%. This was for a business credit card I've used regularly since opening the business, mostly for parking short term debt at a reasonable rate. It's never used for purchases, just as a line of credit. I would keep about five to ten thousand dollars and make payment of around five hundred to a thousand dollars a month, pretty good for a low interest card (around 7%) and a very useful tool. I've never been late with them, or anyone else, and my credit is good, so I was surprised to see this happen.

When I called them, I expected to straighten this out. Usually when a credit card company does this, they need a little arm twisting to get them on the right path. You should never accept crappy interest rates or ridiculous fees. Call, complain and threaten. Threats of canceling the card are a good start, and that's what I did. The account rep said fine, your account will be closed effective immediately. Wow! Just like that. No argument, no sending me to the closer to entice me to keep my account. No caving on interest rates. They had obviously decided they no longer wanted me as a customer and this is exactly the outcome they were hoping for. It was a surprise for me and my mind raced.

The wheels in my head started turning. What did this mean? It would certainly add a couple hundred dollars a month of extra expense I couldn't afford, if I couldn't find a good way to park that money. What about expansion? My goal was to pay off that card by the end of the year and expand the business by leveraging the credit again on that card. Were my expansion plans finished too? What did that mean long term? I started going through my wallet looking at business cards, most of which I rarely use. A couple had reasonable rates for purchases, but had cash advance rates of around 20%. I decided to call Chase, the bank that owns the card I use most for business.

My Chase card is where I get those obscene amounts of frequent flyer miles. I've been using my personal card for years, because the credit limit is enormous and I need that for purchasing all the goods in the store. After a friendly discussion, in which they told me the huge interest fees I would pay if I tried to park money on that card while at the same time spending fifteen to twenty grand a month on rotating purchases, they convinced me to open a business account. I had been pre-approved for about 2 years now, off and on, so I went ahead and opened a replacement account for the lost Advanta card. This is actually important, since closing a line of credit hurts your credit score, boosting up your debt to available credit ratio.

The Chase rep also suggested I call back about the podunk Chase Amazon business card I signed up for when I was trying to get a free book last year. I already had a business card from them but I rarely use it. After calling the business group, they were happy to park my money for even less than Advanta (5% forever). This told me that I wasn't the one in trouble, it was Advanta.

While Chase, a well diversified bank, saw me as a stable customer for seven years who makes enormous monthly payments and always pays his bills on time, my guess is that Advanta is doing deep data mining and analysis on their business customer base, anticipating all the eventualities. According to this article, Advanta is already in trouble: "Advanta saw an 83% decrease in earnings in its second quarter, due in large to provisions for credit charge-offs." That doesn't help me much, since it doesn't really matter whether I'm to blame or the bank is to blame when my rates get jacked.

Chase seems to be doing fine and they understand me as reflected in my past credit, while Advanta is predicting my business will fail soon. Thanks Advanta. When I told my Chase rep about the Advanta tactics, she was not surprised, telling me she gets several calls a day with the same story. Advanta isn't the only one. The article goes on to explain that rate jumps are often unrelated to customer activity:

Card issuers from Bank of America to Capital One are using the economic crisis as a reason to raise rates. According to Consumer Action's 2008 survey of card companies, Bank of America, Citi, and Capital One have recently said that "market conditions" could cause them to increase APR's.... "It's becoming a more common practice," says Ben Woolsey, director of consumer research and marketing at creditcards.com, a comparison site for card offers. "It's a broad, nebulous provision."

1 comment:

  1. Credit card companies will always raise your rates for no reason once they have you on the hook for enough money.
    Even when the market is working as normal, it still takes time for the consumer to transfer to a new company - if they even opt to go through all that hassle.
    More profit for the credit card companies.

    It is such excesses that give capitalism a bad rep.