The credit-card offers keep getting more generous. Low introductory interest rates. No interest until 2004. No interest for the entire life of the loan.

“We want to engage the customer,” explained Ron Robine, chief credit officer at Bank One Corp., which is offering no interest on purchases and balance transfers for a year. “We want to be the primary credit card being used.”

But at the same time that credit-card companies are making these offers, they are increasing their scrutiny of customers, watching their every move to see if they remain worthy of such generosity.

“What will happen is that those people who violate the agreement go from zero percent to 16 percent, and they wind up subsidizing everyone else,” said David Robertson, publisher of The Nilson Report, a consumer payments newsletter.

Time was when a late payment or an overdraft on your line of credit could result in your paying a higher interest rate. But now – with competition intensifying and personal bankruptcies soaring – credit-card companies are unleashing a slew of policies aimed at reducing their risk of defaults.

Among them:

Your rate could go up if you take advantage of another credit-card offer, or if you have a new mortgage or a new auto loan. The reason? Your risk profile has changed.

Your credit-card company could jack up your rate if you are late with a payment – even on another credit card or some other bill.

Card companies are raising late fees and reducing grace periods.

Remember, when a credit-card company offers you a low interest rate, it’s not the same as a bank loan agreement, in which the interest rates and other terms are spelled out. With a credit card, your interest rate can change at any time.

“This is why it’s such a land mine for consumers,” said Linda Sherry, a spokeswoman for Consumer Action, a consumer advocacy group in San Francisco. “You have to tread very carefully, or it could blow up in your face.”

While the card deals are pouring in, experts say there are many caveats. In the case of some low-interest offers, the minute you make a mistake, you get boosted to a much higher rate.

Take Discover card’s recent offer of zero percent interest for the life of the loan. The agreement on this card requires you to make two purchases each billing cycle. Your purchases can be for any amount. But after six months, if you miss a purchase in a billing cycle, your rate goes up.

The Nilson Report said that three out of four customers do something that violates the cardholder agreement and lose a favorable balance transfer rate.

“Companies are waiting for a certain percentage of customers to make a mistake so that they can make money,” Robertson said.

After just one mistake, a customer may be able to talk a customer service representative into restoring the teaser rate.

But the safer bet is to pay on time.

The first thing you ought to do when you check out a credit-card deal is to read the fine print.

For example, Bank One’s cardholder agreement says it “can at any time change this agreement, including the annual percentage rate and any fees.”

It will notify you of the change, but there’s nothing much that you can do at that point, short of paying off the balance or trying to take your business elsewhere.

American Express’ agreement states that your account is in default if it feels that you have violated the card agreement. The decision to change your terms is based on American Express’ “determination of your creditworthiness.” It says it will periodically look at whether you are carrying too much debt compared with your resources. It will also look at other credit characteristics, regardless of your performance on the Amex account.

Experts say you have to read your agreement and be comfortable with the implications before you agree to a deal.

“The smaller the print, the more important the words,” said Greg McBride, senior financial analyst at Bankrate.com, which tracks consumer interest rates.


Credit experts say your history with your credit-card company is no longer the biggest criterion for whether your card agreement is amended.

“The fine print says that even if you are current with your payment, the issuer reserves the right to adjust your interest rates if it believes that you are no longer as creditworthy as you were when they first gave that offer,” Robertson said.

While card companies have always looked for ways to maximize profits, the race is even more pronounced in today’s high-default economic environment. Credit issuers are watching you more closely than ever before – pulling up your credit reports and FICO scores on a monthly basis, in some cases.

“Lenders are becoming more and more wary of the economy and of consumer credit habits,” said John Ulzheimer, business development manager at Fair Isaac Corp., which developed the FICO credit score. “They want to be aware of changes in the consumer’s credit history. Even three months is not frequent enough. Many of the companies are still doing this quarterly – but the trend seems to be going monthly.”

Card company executives say they have to be ultracautious in a down economy. The current bad-loan writeoff rate – even for companies that cater to consumers with reasonably good credit – is 5.4 percent, according to R.K. Hammer Investment Bankers, a California-based company that monitors the card industry. Default rates stood at 5.1 percent last year.

R.K. Hammer projects that for every top-line dollar that a card company will earn in 2003, it will lose almost 30 cents in the bottom line because of chargeoffs.

So card issuers have stepped up their vigilance. Bank One, for instance, pulls up profiles on its 37 million customers every two months.

The problem is that consumers have no chance to intervene in the process. Say you respond to a direct-mail teaser rate of zero percent for a year. This act could change your status in the eyes of your existing credit-card issuer, which might decide that your risk profile has changed because you have taken on more debt. But you would have no clue about this change until you get your monthly statement.

Also, you do not have much recourse after a company decides to change your rate. In some cases, you may have the option to pay the balance in full under the prior rate.

In addition to these subtle changes to credit-card agreements, companies are also making some overt adjustments.

Bank One has stepped up late fees from $29 to $35. And recently American Express introduced a tiered fee structure under which consumers with higher balances pay higher late fees than those with lower balances.

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(c) 2003, The Dallas Morning News.

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ARCHIVE ILLUSTRATIONS on KRT Direct (from KRT Illustration Bank, 202-383-6064):

CREDIT CARD 2 illus., size as needed, Kirk Lyttle color illustration of man chasing a carrot attached to a Visa “credit car” he is driving.

CREDIT CARD 1 illus., 160 dpi, 28p x 18p, Ron Coddington color illustration of credit card with headline “Pushing Plastic.”

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