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07-18-2009 09:40 PM
Well I got slammed with the Citi rate hikes today. The first thing I did was come here as this is always my first stop to see who else is with me and sadly to say, I apparently am one of many to get hit this time. I feel for you all as I feel for myself right now. And I want to say thank you in advance to anyone that can offer me some insight.
First, some history. I have good credit with a score of 710, have never missed a payment, have a utilization ratio of 38%, and have no blemishes on my credit report. The only negative is that my utilization ratio is higher than I would like but my wife just finished grad school and starts her new job in two weeks so I was using the credit cards to bridge the gap temporarily.
Now for the issue at hand. I have two Citi cards and both were hit with the APR hike. One went from 12.99% to 29.99% and has a limit of $2,500 and a current balance of approx. $900. The other went from 9.99% to 29.99% and has a limit of $10,000 and a current balance of approx. $4,500. The second card has also only been open for about 18 months so it isn't a lengthy history card which is the only good thing about this situation. The first card's rate hike isn't as much of an issue as I can rearrange some finances, pay it off, and leave it open and carry no month to month balances while charging a little each month to keep it active. The second card's rate hike though is much more of a problem. I thought a rate hike could be coming, but I never imagined it would be this much of a hike, especially after they hiked the rate less than 6 months ago, but it is what it is and I have to figure out how to deal with this second card now.
Considering the severity of the rate hike on the second card combined with the fact that I can't pay off the balance via cash, loan, or balance transfer; my initial thought is to opt out and have the account closed. Of course I will attempt to argue and either get the APR lowered or get Citi to let me opt out without closing the account, but I don't see either option really having much of a chance. However, I have a few questions regarding the ramifications if I do opt out. I realize that if I opt out, it will close the account and my utilization percentage on my credit report will increase thus bringing my score down a little. What I don't know is how that will work with an existing balance though and I'm hoping someone here can shed some light on it for me.
For example, I understand that if I have credit card A with a balance of $2,000 and a limit of $5,000 and credit card B with a balance of $0 and a limit of $10,000 that my current total utilization rate is 13%. I realize that if I close credit card B, my utilization rate will go to 40% since I'd be left with a total balance of $2,000 and a total limit of $5,000. What I don't understand is if I have credit card A with a balance of $2,000 and a limit of $5,000 and credit card B with a balance of $5,000 and a limit of $10,000 what would happen if I closed credit card B without paying off the balance. Would my credit report then show a total balance of $7,000 and a total limit of $5,000, which would totally ruin my credit report because it would show that I am actually drawn over my total credit limit, or would it simply show credit card B almost like a fixed loan where my outstanding balance would always equal my total limit and thus show 100% utilization which still isn't great but is better than showing that I have more credit out than I'm allowed?
I need to make sure I fully understand the ramifications of closing this account before I do as I don't want it to backfire and cause a domino like effect where my other credit cards see "a problem" and begin raising my rates instantly across the board. So if anyone could help me out, it would be greatly appreciated as this is going to be a very important decision that could have far reaching implications on my financial future and I want to make sure that I make the right choice. If any other information is needed or if I need to clarify anything, please let me know as I'm a little scatter brained right now as I type this.
And most importantly, thank you in advance to anyone that can offer some insight as to how this would work in regards to my specific situation.
07-18-2009 10:05 PM
Now for the issue at hand. I have two Citi cards and both were hit with the APR hike. One went from 12.99% to 29.99% and has a limit of $2,500 and a current balance of approx. $900. The other went from 9.99% to 29.99% and has a limit of $10,000 and a current balance of approx. $4,500.
I'm sorry about your situation. All my rates have gone up also and Citi was the worst. If you opt out on the second card will they not leave the terms like they are right now but close your account? That way at least your rate would stay at 9.99% while you pay it down. I was given such an option about a year ago. I chose to keep it open with the higher rate but fortunately my balance was pretty low and I've managed not to pay them any interest since the hike.
I've also seen in some cases where a CCC will allow you to keep the lower rate AND the account open as long as you don't use the card for anymore purchases. (I THINK I've seen that. Maybe I'm dreaming?) You might ask Citi about it. All they can do is say no.
I'm still learning from the experts around here. I'm sure someone can give you better advice than me. Good luck to you.
Time can heal all wounds and a low FICO.
07-18-2009 10:14 PM
I hope someone with more knowledge will answer you, but I can at least offer my experience.
After I closed a Cap One to retain the super-low interest, it almost became a moot point. As it's quickly heading towards zero, it really will be soon.
If it were me looking at the two cards you mention, I'd opt out and close the card with the higher balance and little history. At 9.99 it won't take long to pay off the balance. At 29.99, it's highway robbery on their part.
I'd keep the older card open if you can pay off the 900 quickly.
The sad fact is that they really don't want any of us who ever need to carry a balance even for a month. This country has had so much income redistributed upwards in the last 25-30 years; unsecured debt is on track to be phased out.
07-19-2009 10:31 AM
Thanks for the words of encouragemtn regarding my situation. Fortunately, my wife starts her new position in 2 weeks and we've been getting by on one income more or less for the past year, even though that has resulted in our credit cards being used more than we would like. But the new job will increase our monthly income and I should be able to knock out this card, and pretty much all of our debt, within a year or so. So I guess it's one of those situations where I can at least take a little solace in the fact that at least the monthly increase in income will help to remedy this situation quicker than what I could have done a month ago.
At worst, I can take the rate hike and begin moving all excess payments to this card to pay it down as quickly as possible. Of course this rate hike is going to shoot the monthly interest through the roof. But if I can close the account and pay it off with the lower interest rate, that would be the most desirable option as it would be paid off quicker since I'd be dealing with less interest each month. The potential drawback to that though is that if I close the account and the closed account with a balance throws my utilization rate over 100%, then my other cards would begin increasing my rates across the board and make this situation spiral out of control very quickly.
Hopefully someone who has more experience in this matter than I do can offer some assistance and let me know if my concern would actually happen if I choose to close this card.
Again, thanks in advance for any assistance that anyone can offer.
07-19-2009 11:06 AM
07-19-2009 12:55 PM
Just curious - are they doing this to everyone? I have a Citi account with $10,600 credit - I will not pay that high of an interest rate, no way!!!
The changes don't affect every Citi customer, but it does seem to be fairly widespread. DW just received a notice yesterday that her APR is increasing from 5.99% to 14.99%. Below is the information that was posted over at CB last month. The minimum APR is a "floor" rate that applies whenever prime rate is less than 6%.
... there will be a July 2009 Change in Terms that is effective with the August/September billing cycle with an opt out deadline of September 30, 2009. The notices will start coming out with the July statements. The changes will only affect the standard purchase APR.
Here are the possibilities of what the rate could go to:
Prime + 23.99% = 29.99% minimum APR - If rejected, the account will be closed that day.
Prime + 13.99% = 19.99% minimum APR - If rejected, the account will stay open until card expires.
Prime + 8.99% = 14.99% minimum APR - If rejected, the account will stay open until card expires.
07-19-2009 04:57 PM
07-19-2009 05:03 PM
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