What's the Rate? They Won't Say
You'll have to wait until the card arrives
Imagine mail-ordering a product and not knowing its exact price until it arrives at your door. Yet that is how some credit card issuers are peddling plastic. Wells Fargo Bank, for example, lists four interest rates on its credit card application: 12.75, 16.15, 18.15 and 19.8 percent. Which rate applies is determined after the applicant's credit history and latest figures on debt vs. income are reviewed -- and disclosed when the card arrives. As more issuers "personalize" interest rates, more consumers will be forced to play interest-rate roulette. Wells Fargo uses "risk based" pricing: the better your credit history, the lower your rate. Issuers have long used such pricing in dealing with existing cardholders, which may explain why your request for, say, an annual-fee waiver was denied. Last year, some issuers began regularly monitoring credit reports as well, hiking rates for cardholders whose credit had nose-dived. Consumer groups didn't like that. They don't like the latest wrinkle any better. Keeping the rate under wraps prevents consumers from shopping for the best deal, says Linda Sherry of Consumer Action, a San Francisco-based group. Banks say such pricing actually is fairer, just as with car insurance: Bad drivers pay more than good drivers. Factors other than credit history help determine personalized rates, however. San Francisco-based Providian Bank asks applicants what they pay on other cards -- the cardholder sends proof -- and then beats them (after three zero-interest months). The applicant doesn't know by how much until then, except that the rate will land "between 5.9 percent variable and 15.9 percent variable," according to a recent mailing. Signet Bank uses a low-rate introductory phase as a probationary period for some new cardholders -- to see, for instance, whether they pay on time. A recent preapproved offer, touting 9.9 percent interest until January 1997, notes that the bumped-up rate will be "a fixed rate as low as prime plus 6.9 percent based on your account performance." That rate could be as low as 15.5 percent, given the current prime -- but no upper limit is given. The vague "as low as" bothers Ruth Susswein, executive director of Bankcard Holders of America, a consumer group in Salem, Va. She cites a federal law requiring issuers to disclose the interest rate in preapproved offers. Signet says its statement complies, but it will review it. "We want to make every attempt to be clear," says Signet's Gail Sanders. Cardholders who don't like their rate can cancel, but that's a nuisance. Moreover, numerous requests for credit --which show up on credit reports -- could be viewed negatively by other lenders. It has become more important than ever to review your credit report regularly for accuracy. The reports are free to anyone denied credit. TRW (800-682-7654) will send one free report annually; Equifax (800-685-1111) and Trans Union (PO Box 390, Springfield, PA 19064) charge $8, with exceptions. A failing grade on these reports could be costly.
This story appears in the August 19, 1996 print edition of U.S. News & World Report.