The opacity of credit card offers hit home for me recently when I was approved for a Discover it Miles card. Within minutes of applying, I was pleasantly surprised to see that I had been approved for a $13,000 credit limit, which, according to the American Bankers Association, is above average for cardholders with excellent credit. But Discover didn’t immediately tell me what the APR would be on the card, so I had to wait for it to arrive in the mail before I could see what I would be charged.
The Miles card advertises a 12-point range of potential APRs on its website, starting at 11.24 percent and maxing out at 23.24 percent. But with my long history of paying bills on time, I figured I’d receive a pretty good rate — or at least a rate that’s somewhere near the national average of 15.18 percent. Instead, I was shocked to find that Discover gave me a 21.24 percent APR — almost as high as the average APR for cardholders with bad credit and well above what my other credit cards charge.
I recently reviewed my credit history through Discover’s new free FICO credit score program, so the extra high rate didn’t make sense. I’ve missed only one payment by more than 30 days, and that was more than six years ago. My credit accounts are relatively young — I didn’t open my first card until 2007 — and I don’t use a lot of credit, so my FICO score is lower than I’d like. But compared to the general population, it’s still relatively high. Is 21.24 percent now considered an acceptable rate for cardholders with prime credit scores?
When I called Discover to ask why I was given such a high APR and to see if I could negotiate it down, I received a vague non-answer. The customer service representative said that Discover looked at a number of factors when deciding my rate, including my account balances, how many cards I already own and what I put on my application. She wouldn’t say what specific factors influenced my APR, nor would she disclose all the factors Discover considers. She also declined to lower my interest rate: I’ll have to wait until the card’s 0 percent APR promotion is over before they’ll consider reducing my standard APR.
I don’t plan on carrying a balance on the card and applied for it only so I could cash in on the Miles card’s juicy rewards, so I’ll go ahead and keep it. It bothers me, though, that I was given such a high APR — especially since all the data that’s available to me, including my FICO score, says I’m a pretty good credit risk.
“What else might they be looking at?” I wondered. My husband’s job requires us to move every few years, so I’ve lived at a number of different addresses. I don’t have any evidence that Discover used a nontraditional score; but sources have told me that scores that incorporate nontraditional data sometimes rate frequent moves negatively because it makes you look unstable.
Could my many moves be adversely impacting my credit? Perhaps the nature of my job had something to do with it. I’m a freelance writer, so my month-to-month income varies based on how many stories I sell. That seems like a much more likely culprit since I disclosed I was self-employed on my application. But then why would Discover give me such a high credit limit if Discover doesn’t trust me to pay it back?
According to a review by CreditCards.com, a growing number of credit cards now advertise APR ranges that so wide they make comparison shopping meaningless. Consumers have no way to know what their card’s APR will be at the time they apply.
|CREDIT CARD APR RANGES WIDEN
||4-6 point range
||7-9 point range
||10-16 point range
Source: CreditCards.com research, 100 top cards
Card issuers now are also looking at other data points beyond what’s in a credit report, making it even harder for consumers to guess what rate they’ll qualify for once they apply. For example, if you apply for a card from your current bank, it might use an internal “behavior score” that includes your purchase history and other pieces of internal data, such as how often you pay more than the minimum amount due on your other cards.
Or, a card issuer might supplement your traditional credit history with nontraditional data, such as rental history and cellphone and utility payments. The major credit scoring companies FICO and VantageScore both offer credit scores that incorporate nontraditional data and directly market those scores to credit card companies.
Now because Discover won’t tell me what exactly was looked at to evaluate my creditworthiness, I’ll never know why I was socked with a high APR.