Credit Cards Carry Risks

With the holiday shopping season now officially under way, millions of Americans will be using their credit cards more than at any other time of the year.

But convenient as they are, credit cards carry financial risk – including interest-rate hikes that hit when you least expect them, reports CBS News correspondent Thalia Assuras.

Sales of books and jewelry and other sundries through her at-home internet company have been pretty good for Melanie Mills – and fun too.

Not so funny was the surprise the Medford, Oregon resident got last year. The interest rate on one of her credit cards suddenly doubled.

"I was stunned," says Mills. "I couldn't figure out what had happened because I have an excellent credit rating. I have no negatives. I have no late payments, no defaults."

What shocked Melanie Mills is what's called "universal default." Perfectly legal, it's when a credit card company jacks up its interest rate after deciding you're not so credit-worthy anymore. And it may have nothing to do with that card.

It can happen for several reasons: a late payment on another card; looking into refinancing your mortgage; or making more-than-usual big purchases like Melanie Mills did in preparation for holiday sales.

Forty-five percent of credit card companies have a universal default policy – protection against such risks.

"If you incur speeding tickets, you are a riskier driver and you pay higher insurance premiums. And it's the same thing with credit – if your credit worthiness deteriorates you pay more," says Nessa Feddis of the American Banking Association.

Consumer advocates say it smacks of changing the rules in the middle of the game.

"It's just not fair to consumers," says Linda Sherry of Consumer Action. "If someone does show some signs of being risky, how in God's name does it help hiking their interest rate three times? That's only going to put them deeper in the hole!"

Sherry estimates about half of companies inform consumers of a universal default policy.

"But the way they mention it you'd never know what they're talking about," she adds.

Nessa Feddis disagrees.

"There's no trick," she says. "People say, 'Oh, it was in the fine print.' It wasn't in the fine print. It was in the unread print."

The best advice? Pay the credit card bills on time.

Melanie Mills says she did, so being shocked by more interest has her relying on credit a lot less.

"I use cash a lot more," she says.