Troubling reasons for changing credit rates

Credit-card companies have long raised interest rates and reduced credit lines for customers who carry too much debt, miss payments, or have their credit score lowered. Now, some companies are punishing customers for more questionable reasons.

In June, the Federal Trade Commission sued CompuCredit, which issued millions of credit cards under various names, claiming that it violated the FTC Act by, in part, failing to disclose that certain purchases could reduce a consumer's credit limit. The FTC states that CompuCredit lowered limits for some customers who made payments to bars, for starters. The case is in litigation.

That's an extreme case, but other companies are looking for transactions that could indicate financial disruption, such as a layoff, divorce, or mounting medical bills. Spending patterns that seem out of habit, or the use of cash advances and convenience checks, can raise red flags.

Companies have also been changing credit-card terms based on geography and mortgage data. Someone living in a place relatively unaffected by the mortgage crisis might get different terms than someone living in an area high in foreclosures or unemployment, said Dennis Moroney, research director at Tower Group, a research advisory firm.

Finally, in a 2008 survey of major card issuers, Consumer Action, a nonprofit consumer-rights group based in San Francisco, found that some companies are raising rates for reasons that have nothing to do with the consumer, such as the economy.

What you can do

Card agreements usually allow changes "at any time for any reason." Still, you can minimize potential problems.

• Find out whether you can opt out of changes to your card's terms.
• If you can't make payments, ask for a more flexible payment plan.
• Answer calls from card companies, which are using collection agencies earlier than before. If you can't be reached, that could be viewed adversely.
• Sign up for e-mail alerts that help you track your balance or payment-due date.
• If you think you've been targeted because of your location, see whether you can get the terms adjusted.
• If your card's interest rate was raised and you carry a balance, transfer the balance to a card with a lower rate, preferably one without a balance-transfer fee.
• For serious trouble, consider contacting a nonprofit counselor who belongs to the National Foundation for Credit Counseling.