Penalty!

How consumers still get smacked with credit card penalty rates

By Marya Hammer, STCU product development analyst

[February 3, 2012]

Imagine making your way through the challenging game of paying down your credit card debt when suddenly your interest rate jumps to 29 percent.

Personal foul! Penalty. Flag on the play.

Didn't congressional reforms eject that ugly practice from the field? Not exactly.

Research by Creditcards.com shows that nearly seven out of ten credit card companies, banks, and yes, even credit unions, are still charging a penalty interest rate on customers whose payments become 60 days late.

Even worse, the average annual percentage rate charged has risen to nearly 29%. Talk about playing dirty!

Luckily, you've got a valuable teammate on your side. STCU does not currently -- nor have we ever -- charge a penalty interest rate on any of our three Visa® credit cards.

Best practices from STCU

Many Inland Northwest banks and credit cards still use penalty rates, so check the fine print or ask them before applying for a card. Better yet, pay off those card balances with an STCU Visa credit card and we'll lower your rate to just 6.9% APR for the life of that balance transfer! With no balance transfer fee.*

Penalty rates rising

Regulators still allow credit card issuers to charge a penalty interest rate if your credit card payment is 60 days late or more. While the Congressional Accountability, Responsibility, and Disclosure Act (CARD Act) in 2010 decreased the number of issuers charging a penalty interest rate, the average rate charged has increased in the past two years, Creditcard.com found.

Since reforms were enacted, the average penalty rate has jumped from 27.9% to 28.6% APR. And if your payment performance isn't spot on during the subsequent six months, that jacked-up interest rate can stick around indefinitely.

Why should I care?

Would a penalty rate hike really make a big difference in what I pay? Yes!

For example, say you were trying to pay off a $5,000 balance on your 12% credit card. If you faithfully paid $127 per month, you could pay off that balance in just over four years. But if your card company hikes your rate to 28.6%, it would now take you nearly 10 years to pay off that same balance.

And an extra $8,628 in interest payments. That's not a misprint. That's the tragedy of penalty rates on a credit card!

Check your card

With 69 percent of credit card issuers charging a penalty rate, chances are good that, unless you're using your STCU Visa exclusively, you may have an offending card in your wallet.

If you currently have, or qualify for, an STCU Visa, we can help you to pay off those other cards with your STCU Visa at our low 6.9% APR. There's no balance transfer fees, low interest rates on new purchases, and never a worry about a penalty interest rates.

Get started today using our online application. Or visit any of our branch locations during business hours, call us at (800) 858-3750, or chat with a friendly STCU member service representative.

A great rate you can count on. From a credit union that cares. Now that’s a win-win.

What about credit cards keeps you up at night?

Penalty interest rates are just one of many confusing things about credit cards. Visit our Facebook page to answer what confuses you most about credit cards? We'll take your ideas into consideration as we present more ideas for winning the credit card game here next month.

Resources

Visa disclosures and benefits

*Important terms and disclosures

*APR = annual percentage rate. The 6.9% APR promotional rate applies only to non-STCU loan and credit card balance transfers to an STCU Visa credit card account made before June 30, 2012. Subject to credit approval. If approved, you may transfer balances in amounts up to your approved credit limit.

There is no balance transfer fee during the promotion period! Any balance transfer after the promotion will be subject to 13.9% APR and our standard transfer fee, so make your transfers now.

STCU's low rate for purchases are: Visa Platinum 8.9% APR; Visa Gold 10.9% APR; Visa Classic 13.9% APR. More about STCU credit card features. All cash advances, 13.9% APR. There's no annual fee on the Gold and Platinum cards. If you sign up for electronic statements on your Classic card, we'll waive the $12 annual fee. A one-time $20 membership fee is required when you join STCU.