Let’s give credit where it’s due: The CARD Act of 2009 went far in protecting us from some of the unfair practices we used to regularly endure as credit card users.
For instance, issuers are now only permitted to raise our interest rates under very specific circumstances — no more arbitrary hikes without notice. However, that doesn’t mean your credit card’s APR can never go up. Here are 5 times your credit card issuer can raise your rates — and what to do if one of them happens to you:
1. You’re on a promotion that’s ending
If you took advantage of a 0% balance transfer offer to pay off your credit card debt, you likely saved a bundle during the interest-free period. But it won’t last forever; most cards only give you 6-12 months at 0%. After that, your issuer is free to hike your rate. Nerd note: What you’ll be charged in interest varies by issuer, but your credit score will be a big determining factor.
Although the CARD Act specifies that issuers must provide you with written notice at least 45 days in advance of a major change to the terms of your account, an expiring promotion is exempt from this rule. It will be up to you to keep track of when your 0% period is up, so make it a priority to pay off the balance you transferred as soon as possible.
2. You’re more than 60 days late on your payments
Paying your credit card bills late is never a good idea — it will likely result in late fees and could do serious damage to your credit score. But if you go 60 or more days without making a payment, things start getting really dicey. At that point, your issuer will be able to impose a very high rate known as the penalty APR, which could be as high as 29.99%.
In most cases, the CARD Act prevents credit card companies from raising the interest rate on an existing balance. But if you get hit with a penalty APR, your issuer is permitted to apply it to your outstanding charges, as well as new purchases. What’s more, you’re likely going to be stuck with this sky-high interest rate until you’ve made 6 on-time payments.
The takeaway? Make every effort to pay your credit card bill on time. Do your best to work with your issuer if you can’t afford a minimum payment.
3. Your credit score dropped substantially
You probably already know that your credit card issuer is periodically reviewing your account and personal information. If they spot a change they don’t like — like a significant drop in your credit score, for instance — they can raise the interest rate on a card you already have.
But this is where the CARD Act comes in; it places regulations on how credit card companies are permitted to do this. For one thing, this is a case where you must receive 45 days advance notice of the change in your interest rate. Also, the rate only applies to new purchases — not your existing balance. If you choose not to accept the change, you’re able to close your account at no penalty.
Also be aware that if your rate was raised because of a drop in your credit score, your issuer is required to review your account in six months for signs of improvement. If your score goes back up, the issuer must consider reducing your rate.
4. You have a variable-rate card and the prime rate is going up
You might not realize it, but broader economic conditions could influence how much you’re paying in interest on your credit card. Here’s why: Most plastic carries a variable interest rate, meaning that it’s subject to change over time. One of the factors that likely affects your APR is what’s known as the prime rate, an interest rate indirectly set by the Federal Reserve. Most credit card companies charge customers the prime rate plus a certain percentage.
If the prime rate rises, the interest rate on your credit card will rise, too. This is another situation where your issuer isn’t required to give you 45 days advance notice of the change to your APR.
There’s not much you can do about an increase in the prime interest rate – it’s not something your issuer has control over and it will affect almost all of the credit cards on the market. But as long as you’re paying your balance in full every month, you probably won’t even notice the change.
5. You’ve had the card for at least 12 months
One of the provisions of the CARD Act is that issuers generally can’t change the interest rate on a card you’ve had for less than a year. There are exceptions to this (a 60-day delinquency or a change to the prime rate are good examples — see above for details), but if a year passes and your issuer wants to raise your rate, they’re permitted to.
Again, though, you must receive 45 days advance notice of the change; if you find yourself in this situation and aren’t sure why your rate is going up, call your issuer right away to find out why. It might be the case that an error has popped up on your credit report. If so, you’ll need to take steps to have it corrected – pronto.
Rising interest rates image via Shutterstock