Four Times Banks Can Increase Credit Card Interest Rates
The chart below illustrates the discrepancy between the prime rate and credit card interest rates, from 2000 through today.
Will Banks Lower an Increased Interest Rate?
Creditors are required to review previous credit card interest rate increases every six months to see if circumstances have changed and lower your interest rate accordingly. If your rate was increased because of a 60 or more day delinquency, your creditor is required to lower your rate after you’ve made six consecutive payments. However, your card issuer only has to lower the rate on the existing balance. Credit card issuers are allowed to leave the higher rate in effect for new purchases made after the penalty rate became effective. Check your credit card terms to see if your card issuer uses this practice. Creditors cannot increase interest rates within the first year of an account’s opening unless you’ve defaulted on the account, you have a variable interest rate, your hardship arrangement has ended, or the promotional rate has ended.
Advanced Notice of Fixed Interest Rate Increases
Not many credit cards have fixed APRs these days. But, for those that do, credit card issuers are required to give you a 45-day advance notice before increasing your interest rate. At that point, you can choose to opt-out of the new rate, in writing, and pay off your balance at your current interest rate. Your credit card issuer may close your account if you decide to opt-out of the interest rate increase. If you choose to accept the new rate, the higher rate will only apply to charges you’ve made after the rate increase became effective.
