Why Your Credit Card Rate Just Went Up!

Banks are increasingly pouncing on cardholders with any kind of chink in their credit report, a survey finds, with penalty rates of as much as 35%.

Imagine opening your credit card statement to find that your low, low rate has more than doubled, even though you've always paid your bills on time.

It happens, and it's happening more and more frequently, says a consumer-watchdog group. Nearly half of banks surveyed by Consumer Action now penalize cardholders for changes in their credit history -- changes that can range from a late car payment to a mortgage inquiry -- with "universal default rates" of up to 35%.

Five years ago, the group says, almost no banks had such a policy.

The penalty makes carrying a card balance very, very expensive. The average card balance was $3,632 in 2004 (the last year for which figures were available), according to Carddata.com. The minimum payment -- typically 4% of the balance -- would be about $147 a month. Paying $147 a month, a cardholder with the average non-penalty rate of 12.61% would clear the debt in 29 months and pay $560 in interest. But at a penalty rate of 28%, you wouldn't vanquish the debt for 38 months -- and you'd pay nearly $1,900 in interest.

"This is the only industry that re-prices something you have already paid for," said Linda Sherry of Consumer Action.