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Reader Question: Bank of America Closing my Account After I Opted out of a Rate Increase

Last updated by on 15 Comments

Credit Card Companies Scrambling to Raise Rates Before the Credit Card Reform Act Kicks in

With the Credit Card Act kicking in this year, card companies have been reportedly looking for excuses to increase interest rates, shut down accounts, and lower credit limits. I received this question from a reader and wanted to throw it out to the 20SomethingFinance readers for opinions on what she should do:

I have a question for you that no doubt other people are running into with the economy today. I made it through college and graduate school without racking up any credit card debt, but then a few months after graduating and starting my job I had an unexpected $6000+ medical bill that I had to put on my credit card (with Bank of America). After a few months of making more than the minimum payment and always making them on time, my bank doubled their interest rates due to “increased cost of business.” I wrote them to reject the change, to which they replied that the account would retain its current (7.99%) interest rate but would be closed as soon as I finished paying off the debt. This card is by far my oldest and highest limit credit card. So, my question is: should I hurry to pay off that debt so it’s not hanging over my head, or should I pay it off over time to help my credit score so that the age and limit of my other credit card have a little time to increase?

Citibank Also Raising Credit Card Rates

Bank of America Credit CardAfter doing a little research, I discovered that Citibank and Bank of America are increasing rates for a lot of customers. I am surprised that in this case they told the reader they would ‘close’ the credit card account, which puts the card user in the bad situation of closing their card (and losing the credit history – which might hurt your credit score) or swallowing the higher interest rates.

Credit Card Strategy Discussion:

  • How would you handle this situation? Would you pay off the debt right away and move on?
  • Has your credit card provider done this to you? Which company was it?
  • Would you have tried negotiating your rate?

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15 Comments »
  • Marco says:

    If the reader is going to have her card closed, then she might as well pay it off right away and open the new one ASAP unless she is going to be taking out a loan anytime soon.

  • Jonathan says:

    If you read the fine print of the rate increase notice, this wouldn’t come as a surprise. Under existing law (not the new one going into effect in a couple months) companies have to give you the option of opting out without penalty (this includes changes to privacy policies). But they are not obligated to continuing an acount with you if you opt-out. Your options are to take the rate increase or close your account. It sucks, but that’s why they’re doing it now before the new laws take effect.

    Always read the fine print. And get health insurance.

  • Winter says:

    Disclosure: I work for an industry trade group representing credit unions.

    Open another card, preferably at a credit union where rates are capped at 18%. Right now their rates are fantastic.

    You can explain the situation and see if you can get a balance transfer option that will match the interest rate you have now.

    You can find a credit union to join by searching for credit unions in your area, many now have more open field of memberships (meaning you can join by tossing $5 in a savings account as long as you live in the area).

    There are several sites that will help you find a credit union, just google it, or go to creditunion dot coop.

  • Seska says:

    I am not ashamed to say that I’m the person that asked this question.

    @Agency collection: I didn’t choose Bank of America. The card was initially with MBNA six years ago and I never had any problems until they were bought out by Bank of America.

    @Johnathan: I wasn’t surprised, I did read the information that came with the rate increase notice. I rejected it because I thought it was ridiculous and I have another card with a much lower rate than what they wanted to increase the interest to, it just has a much lower limit because it’s a newer card. And I DO have health insurance—the $6k was my out-of-pocket expense. Just because you have insurance doesn’t mean you can’t rack up massive medical bills.

    @Winter: Thank you for giving a good, non-judgmental answer.

  • Mike says:

    Hey @Seska,
    Great question! You make a great point about having a good age and limit to help your credit score but it doesn’t make much sense if the only reason that you’re thinking about making minimum payments on your balance is to build your credit score. Here’s why:

    Your credit score is made up of

    1. 35% payment history
    2. 30% debt usage
    3. 15% credit age
    4. 10% account mix
    5. 10% inquiries

    The majority of your credit score is determined by making your payments on time and having a low debt-to-limit ratio. So lowering your balance faster would help your debt usage portion of your score.

    While credit age is important, chances are accounts with an age less than 7 years isn’t going to help your score that much. Even if it is over 7 years, it’s not going to help your score that much.

    Having an similar types of credit isn’t going to help you out either. It’s more important to have a variety of credit than another credit card balance outstanding.

    Hope that helps.

  • Wizard Prang says:

    I had an MBNA card once. I closed it after BofA ate them.

    Full story here:
    http://wizardprang.wordpress.com/2006/11/15/bofa/

  • robin says:

    I have a card with Chase and encountered this as well. Their rates are going up in February, I’m guessing right before the laws change.

    I wrote them a letter to reject the increase and they wrote me a letter saying that they felt it was fair. I disagree. So I scrimped on my holiday shopping and paid it off in full. It’s going to be totally paid off in 2 days (some automatic bill stuff foiled my plan). I opened a new CC with my credit union. The Chase card is the oldest card in my history, but they gave me the opt out and I feel it’s important that they understand the cost of doing business sometimes means losing customers.

    My credit score took a tiny hit for this. But mostly because I also let the credit union refi my auto loan at a lower rate. So while the inquiries and change in time frame of accounts made the number go down, I’m saving money in the long run. The score will recover in short time.

    I’d say, pay off the account. Get another account (with a credit union) and tell Bank of America thank you for giving you the opportunity to keep your low rate while you pay off your debt and for making it clear to you why you need to handle your financial affairs with a competitor.

  • Evgeniy says:

    It is better to pay off the debt. Because negotiations with the bank took a lot of time and effort
    If you can not quickly pay off the debt then it is necessary to negotiate

  • Emily says:

    Can you either (1) pay the balance off before the rate change or (2) transfer the balance to a new card with lower rates? Then keep the BoA card open but don’t use it. That way you keep your credit age, but don’t pay any interest with the new high rate. I’m not sure if you still have this option if you already rejected the change, but you might be able to write them a letter reversing your position.

  • Mark says:

    I have seen this situation happen to quite a few people. I would try to renegotiate the rate if possible. As a last resort I would pay off the debt and shop for a new card.

  • Wizard Prang says:

    Pay it off. Life’s too short to have a Bank of America Credit Card.

  • Apuka says:

    Reject it. You credit score may take a hit temporarily, however, when you keep paying your debt off, it will go back higher again. We ALL should reject their attempts to rule. ‘Nuff said … ;)

  • smilendragon says:

    I’ve been a customer of B of A since they were a savings and loan in 1984..As Banks rather than Savings and Loans..they showed less interest in my needs and more and more about their bottom line…on through their time as Nations Bank the last time “It” was like a bank at all…in their recent incarnation their people have mislead …lied to my face… off and on progressing until currently it has gotten criminal…At this point they are like carneys at a small venue..sucking in the marks..using the policy and holes in government regulations to intimdate… and when you are simply trying to get a fair value on the product you were promised…trying to deal honestly and in good faith they give you nothing in return except platitudes..excuses and empty apoligies…these people are frauds..liars and cheats…they are going down…get out before they take you down with them….I am..and I for one will never do business with them again…..

  • jV says:

    I so agree with ‘if one has an account at lower interest rates that is being increased': let the financial institution know the deal is a deal breaker — don’t waste your breath on the clerk you are speaking with if you call to opt out, he/she either can’t do anything about it — and if they can it is most likely a note on the account that may or may not ever be read by anyone, won’t do anything about it, or, really, could care less; continue paying off the account and when feasible, transfer funds to a same or very low interest rate card/loan: why bother otherwise, as long as the rate is frozen til the card is closed?
    Yes, write the financial institution and let them know you think they are ‘mean people’, but, definitely write congress, and the Treasury Secretary of the US to let them know they are screwing up and we, you, are tired of being manipulated. Call for an audit on government/state financial spending.
    good luck to us all… :)

  • Theo Jack says:

    Reject it. You credit score may take a hit temporarily, however, when you keep paying your debt off, it will go back higher again. We ALL should reject their attempts to rule. ‘Nuff said … ;)

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