Released: October 01, 2008

Mistakes that trigger default APRs

Source: Amy E. Buttell, CreditCards.com (Free Registration)

Compared to credit card companies, the criminal justice system is downright lax. A court may throw away the key after you’ve committed three felonies - the famous “three strikes and you’re out” laws. Not so with credit cards. With many issuers, pay late, bounce a check or go over your limit once, and you’re sentenced immediately - with penalty rates.

While not all credit card companies impose penalty rates - also called default rates - for making just one late payment, bouncing one check or going over your credit limit once, many do after a combination of two or three late payments, bounced checks or exceeded credit limits in a year.

Under such conditions, your interest rate could increase to as high as 31.99 percent, with the average penalty or default rate being 26.87 percent, according to a July 2008 study by the consumer rights group Consumer Action. The Consumer Action study examined rates and policies at credit card issuers and gathered data on 38 credit card issuers that have penalty rate policies.

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