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6 Reasons Why Your Credit Card's Interest IncreasedSeptember 16, 2020
There was a time when credit card issuers could increase interest rates for the consumer whenever they wanted, causing much distress to the cardholder.
Fortunately, with the introduction of the Credit Card Act of 2009, such unfair practices were put to a stop.
Having said that, there are certain circumstances under which your issuer could, nevertheless, increase your interest rate, as follows.
1. Your variable APR is linked to the prime rate
The prime rate is dependent on the decisions made by the Federal Reserve and therefore increases or decreases accordingly.
The credit card interest rates of most consumers are linked to the prime rate, so when this rate rises or falls, the interest rate of the cardholder rises or falls as well.
Let’s say your interest rate is prime plus 10%, so if the prime rate changes to 3%, your interest rate would change to 13%.
In this case, the issuer is not required to provide any advance notice of rate change to the cardholder.
The only way the consumer can get a heads up about his rising interest rate is to pay attention to news regarding changes in the prime rate.
2. When your promotional rate is coming to an end
Many consumers use balance transfer cards to finance a big purchase or pay off the balance on an existing card.
A balance transfer card offers low-interest rates (often 0%) for a promotional period that can last anywhere between 6 – 12 months, after which normal interest rates kick in.
By law, issuers are not required to provide any notice to the consumer that his promotional period is about to end.
It is up to the cardholder to stay alert and pay off the balance before the promotional period expires, or pay elevated interest on the existing balance.
3. If you’ve missed two consecutive payments
When you pay your credit card bill 30 days late, you may have to shell out a late payment fee and suffer credit score damage.
However, if you are 60 days late, your issuer can raise your interest rates – and this increase may not go away until you’ve made at least six consecutive payments on time.
Note that the issuer can raise your interest rate only when you’ve defaulted on a card issued by the same company.
In other words, an issuer can’t raise your rates if you’ve defaulted on a card issued by another company, because the practice of universal default has been banned.
Note that a missed payment is when you don’t even pay the minimum amount due on your credit card during a particular month.
Let’s say your minimum amount due is $50 – if you pay $25 to your issuer, that still counts as a missed payment.
Thus, to avoid such rate increases, always make your minimum-due payments on time.
4. Your credit score has dropped
Your issuer has the right to check your credit score from time to time, and if the company finds that your score has dropped substantially, they can raise your rates if they provide 45 days’ notice before doing so.
On receiving the notice, you have the option of paying off your existing balance and closing the account.
Should you choose to continue using the card, it would mean you’ve accepted the new rate.
However, in such circumstances, the issuer must review your score again after six months. If your score has gone back up, the company must consider lowering your rates again.
5. You’ve been using the card for more than 12 months
By law, the credit card company cannot change your rate if you’ve had the card for less than 12 months - unless you’ve missed a payment.
However, once that period is up, the issuer has the right to raise your rate.
When faced with such a situation, always try and find out why the company is increasing your rate.
If its due to some reason that you can fix – say an error on your credit report – take the requisite steps to correct right away.
6. After you’ve completed a debt management plan
You may have enrolled in a debt management plan or entered into an agreement with your issuer where the company agreed to lower your interest rate for a specified period of time to help you pay off existing debt or overcome adverse circumstances such as loss of job, etc.
However, once that time period is up, the issuer has the right to increase your interest rates.
An interest rate increase can be very harmful to the cardholder – it can have various effects such as elevated interest payments and debt levels, as well as eventual credit score damage and difficulty in accessing new credit.
That is why it is important to remain alert and avoid situations that can lead to interest increases, such as missed payments.
However, if you conscientiously pay your entire credit card bill on time, then rate increases due to unavoidable circumstances such as prime rate hikes would not have much of an effect on your finances.
A rate increase is especially difficult for those who rely on credit cards to finance certain purchases or even their business from time to time.
This is because even a 1% increase in rates can greatly spike the amount of interest they would need to pay on their outstanding balances.
One of the best things to do in such circumstances is to approach our team at Fund&Grow.
We offer individuals with good credit the opportunity to obtain $50,000 - $250,000 of unsecured credit at 0% interest.
Available for a period of 6, 12, or 18 months, this amount can be used for anything – from funding a small business to providing a down payment on a property.
So, if you know someone who needs this sort of financing, have them call us at (800) 996-0270 and we will help them out right away.