Why Did My Credit Card APR Increase?
There are a number of reasons your rate could have increased, but thankfully, not as many as there once were. The Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009 introduced several new protections regarding interest rate changes. For example, the law made it so that credit card issuers can usually only increase your APR on purchases made in the current billing cycle and going forward—but not on existing balances from previous months. It also eliminated something called universal default, which allowed credit card issuers to raise your rate if you’d defaulted on a loan from a different lender. And it banned provisions that let card issuers change your APR at any time, for any reason. Now, credit card issuers have more restrictions. That said, there are some situations where a credit card issuer can legally raise your rate, sometimes without telling you in advance. Here are the most common ones:
Your Card Had a Promotional Rate
Credit cards with a promotional rate allow you to take advantage of a low interest rate on purchases or balance transfers (or both) for a predetermined number of months or billing cycles. After the promotional period expires, the regular, higher APR kicks in on your existing balance and any new purchases. Credit card issuers are required to let you know how long a promotional rate will last, and the interest rate you can expect to pay once the promotional rate expires. Check your credit card agreement or billing statement to determine if a promotional APR is currently being applied to your transactions and any balances you may be carrying.
You Made a Late Payment
The law requires card issuers to be forgiving with your APR if you slip up and pay late by a few days—or even a month (though the card company can still hit you with a late fee). However, your credit card APR may increase to the penalty rate—typically the highest interest rate listed on your card agreement—if you fall behind on your payments by 60 days or more.
The Credit Card Has a Variable APR
If your credit card has a variable APR (most do), your APR may increase in step with an index rate it’s linked to. Many credit cards with variable APRs use the prime rate—the rate banks give their best customers—as their index rate. Banks set the prime rate based on the federal funds rate, which is the rate banks charge each other for loans. If you hear that the Federal Reserve is raising interest rates, that refers to the federal funds rate, and you can expect your credit card rate to go up eventually as well.The timing for a card rate increase depends on the issuing bank. For example, Capital One adjusts variable APRs at the beginning of each quarter, while Discover adjusts rates monthly.
Your Credit Score Declined
Running up your credit card balances, making late payments, or having too many hard credit inquiries can lower your credit score. (Hard inquiries happen when you apply for a credit card or a loan.) A decline in your credit score could signal to your credit card issuer that you’re at risk of falling behind on payments in the next few months. In response, your card issuer may raise your interest rate, but it’ll have to give you a 45-day advance notice before doing so.
The Card is Over 12 Months Old
For the first year after opening your credit card, you’re protected against interest rate increases on new transactions and existing balances, unless:
You have a variable APR and its index rate increasesYour promotional or introductory rate has expiredYou fall behind on your minimum payments by more than 60 daysYou’re on a payment assistance plan (which gives you a reduced interest rate for a limited time period) and you finish, or fail to pay as arranged in the plan
Once your account is a year old, the credit card issuer is free to raise your interest rate for new transactions for any reason, as long as it provides you with the required 45-day advance notice.
