Is my credit card trying to trick me into spending more?

April 15, 2009 2:12 PM

Why was my credit line increased?

I have a credit score that's on the low end of the "fair" rating. I have a high debt to credit ratio and have been making payments on a timely and consistent basis.

I am set up for auto-pay with Citibank. I logged in recently to move the payment date up, and saw that my credit line had been increased, giving me about $600 more dollars in credit.

Within the past few months I got a letter from Citicards saying that my APR would be increased, and if I wanted to opt out of that I would have to close and pay off my account at the current rate. Although I've always paid on time and rarely used the card (as in, once or twice within the last year), the rate jumped from something like 12% to 24%. I didn't want to opt out of this new increase because I want to keep the card.

I've never asked for an increase, so am just wondering why it would be given to me now, unasked, in this economy. What's the catch--are they hoping I'll run it up so they can charge me at this new APR? Citicards has never given me trouble (MBNA is another story) until the APR increase, and now this credit increase comes along and makes me even more wary.

I've become a much better saver, but I also have two major expenses coming up (dental work and school). I'm wondering if the credit card can be used for *one* of these expenses, or if I should keeped it locked away and continue to just use cash.

posted by luckyveronica to work & money (15 comments total)

You've always paid on time, and it sounds like you pay interest, so you're profitable to them. In other words, you're a good customer. Credit card companies are still giving credit limit increases to good customers.
posted by rabbitrabbit at 2:20 PM on April 15 [1 favorite has favorites]

Seconding rabbitrabbit. I would imagine that they feel you're a safe bet. There's nothing a bank likes more than lending money to people they're pretty sure are going to pay it back, irrespective of the economic climate. It's how they make money. My credit limit gets increased about once a year; I've no idea what it is now because I rarely spend more than $50 a month on my card, and pay in full.
posted by le morte de bea arthur at 2:22 PM on April 15

Are they making money off of you? If you have a balance on the card, they're racking up interest charges, and since you pay on time, they get a steady revenue team without much risk that you'll bail on your debt and stop paying them. They want more of that.
posted by univac at 2:27 PM on April 15

I want to know why my credit limit gets increased. I pay off the entire balance before the grace period elapses. Haven't paid any interest for years. How are they making money off me?
posted by univac at 2:28 PM on April 15

Well, they take 1-3% on all charges you make, so the more the better, even not counting interest.
posted by alexei at 2:32 PM on April 15

Two theories: larger credit limit means you might spend more; the c.c. company gets a percentage fee for every transaction you do (from the person you're paying).

Also, evidently you didn't have enough rope to hang yourself creditwise. Now, you have more.
posted by nat at 2:33 PM on April 15

Most banks increase your credit card limits over time.
posted by delmoi at 2:46 PM on April 15

An increase in your limit is most likely because you have good credit and you've consistently made your payments on time. They may be trying to encourage your loyalty and of course hoping you'll incur more debt.

P. S. Don't be tempted to use this sudden "windfall."
posted by neojoyo at 2:51 PM on April 15

Citi increased my credit limit recently too. Also, this wasn't your question, but I would encourage you to call Citi customer service and ask if they have any other rates available for you. I just called them yesterday, totally expecting to get rebuffed, and they dropped my APR by 6% just because I asked them to. It'll take about 10 minutes, but if you're carrying a balance on the card, it certainly couldn't hurt to try.
posted by booknerd at 3:30 PM on April 15

My credit limits are up'ed regularly on both of my cards without me asking, but they seem to be in regard to the fact that 1) I make regular payments; 2) I have not run over my limit, or have immediately paid it down the one month it did on one (and that was by $20); 3) I have been putting more on my cards for various reasons, so I'm closer to my limit. As long as I'm making regular payments, they don't mind the fact that I carry a balance (they love that), but do want to encourage me to spend more. And my increases have also been small, in the below $650 range.
posted by questionsandanchors at 4:15 PM on April 15

I think you're looking for a personal explanation that isn't there. Like any other financial services provider Citi will make mass changes to financial accounts with certain qualities in common (balance, interest rate, frequency of use, etc.). You can bet these decisions are based on mathematical models that are proprietary. Anyone's speculation is as good (or useless) as anyone else's as to what their specific reasoning is for how they expect the changes to impact people.

What's the "catch?" The catch is that they are going to charge you 24% interest on any of this money that you borrow! In a general sense, obviously if they are offering more credit their hope is that you will use more credit, thus generating transaction fee and interest income. I don't see why you would call this "tricking" you into spending more money. They're giving you the option to do so. Certainly all credit providers rely on shitty psychological tricks to induce people to spend stupidly (and any not absolutely unavoidable money spent that you end up carrying as an interest-bearing balance is by definition spent stupidly, and believe me I say that from the perspective of resembling that characterization, unfortunately) - from convincing you that some purchase or experience is too "priceless" to wait to save for it to sending you "checks" in the mail and advising you you can "pay off your debts" with them. Yes, they are hoping you will borrow the money they offered you at their exorbitant interest rate.

As far as the the upcoming expenses, pay cash if you able to is pretty much the answer to that question pretty much always (if you want the charge on the card for some reason but will pay it off in full immediately thereafter): 24% interest adds up fast.
posted by nanojath at 4:16 PM on April 15

Good credit is out there for customers with good credit. I was able to obtain a 0% APR Amex as late as the end of December.

Continue to pay off that card, and even if you don't use the card, monitor the account but do not close it. It establishes length of credit, which is a good thing for you.
posted by jerseygirl at 5:32 PM on April 15

Do you have a long term drawn balance on the card? which you ar epaying 24% on ? thats insane - pay that off stat! those Minimum Repayment Amounts are a scam to get you to keep paying loads of interest.
posted by mary8nne at 2:59 AM on April 16

I opted out of that APR increase with Citibank. I opted out in December, I think. They are closing my account when my card expires in a few months. In February, they increased my limit on that card $1,500. Makes no sense to me, other than they want me to run out and rack up debt on the card that I will be responsible for, in full, when they close the card.
posted by studentbaker at 7:33 AM on April 16

Warning: Credit Card Practices Can Be Detrimental to Your (and their) Health
I found this while looking for some stuff by Elizabeth Warren -- she had some interesting things to say about credit cards on Fresh Air.

Also, you should check the fine print on the terms for your credit card -- they might not be going to raise your APR unless you miss payments. But as Elizabeth Warren has said - it's really hard some time to figure out what the credit card companies really mean.
posted by nnk at 8:48 AM on April 16