How many times have you tossed notices from your credit card issuer without reading them? The best answer is "never." You could be discarding a credit card interest rate increase notice.
Credit cards can change annual percentage rates (APRs) under various circumstances dictated in the terms and conditions of your credit card agreement (another document that you might have tossed).
Generally, the card issuer is required to provide notice of a rate change 45 days in advance, so you have at least one billing cycle to pay down your balance or consider alternatives. However, you should know that you don't always receive explicit notice of an impending credit card rate increase.
When you incur a penalty APR from actions like missed payments, the effect is immediate because the terms were already spelled out in your card issuer's terms and conditions (along with how to restore your original interest rate). Promotional rates with a fixed time period do not require notification because you already agreed to the change.
Interest rate changes resulting from Federal Reserve interest rate hikes also do not require prior notification. Most credit cards have variable rates that are tied back to the Federal Reserve interest rates through the issuing bank's prime rate. The exact adjustment mechanism for your card is spelled out in – can you guess? – the terms and conditions agreement for your card.
Fed rate hikes apply to existing balances as well as future purchases. While the Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009 prevents card issuers from raising interest rates on existing balances, there are several exceptions to that rule – including variable rate cards that are linked to the Federal Reserve's interest rate.
What can you do if you receive a credit card rate increase notice? Matt Schulz, Chief Industry Analyst at CompareCards.com, provides a simple answer: "The best way to get the bank to lower your interest rate a lot of times," says Schulz, " is just to ask." Schulz cited CreditCards.com survey data showing that 78% of cardholders who ask for a reduced APR succeed in getting a lower rate.
If that effort fails, you may be able to find a different card with a more favorable rate, especially if you have a good credit history and a solid record of making payments on time. You can check your credit score and read your credit report for free within minutes using Credit Manager by MoneyTips.
Check alternate card issuer's websites for competing deals. Show that you've done your homework by mentioning competing offers, and you're more likely to succeed in getting a lower rate from your current issuer. Card evaluations and head-to-head comparisons are available online to help you find alternatives.
With a sizable balance, consider a balance transfer card. Balance transfer cards typically offer an introductory 0% interest rate on the balance transferred for a certain period – and sometimes on purchases as well. This provides time to pay the balance down without incurring interest. Check the post-introductory interest rate to make sure that it still meets your goals, as balance transfer cards can carry higher rates after the introductory 0% rate ends.
If all else fails, there's one sure way to not be caught by a credit card rate increase – never charge more than you can afford to pay off at the end of the month. Your interest rate is irrelevant if you never carry a balance.
Adam Carroll, Founder and Chief Education Officer of National Financial Educators, notes that "folks who pay off their credit card every year – or every month – are called deadbeats in the industry... because the credit card companies make no money on them at all."Why not join the "deadbeats" who are unaffected by interest rate changes?
If you want more credit, check out our list of credit card offers.