If your credit card interest rate goes up, it’ll cost more to carry a balance between payments.
Although an interest rate increase might not seem like much, every percentage point—and every penny—counts. When can a bank increase your interest rate? When can credit card lenders change your APR? Are they required to give you notice beforehand? What are your rights as a cardholder?
Here’s everything you need to know about increased interest rates, including whether it’s possible to request that your interest rate go back down.
When lenders can raise interest rates
There are two common reasons why banks and credit card lenders raise interest rates.
First, if you check your credit card’s fine print, you’ll learn when your lender can elect to raise your interest rate based on your behavior as a cardholder. If you are more than 60 days late on a payment, for example, you could get hit with a penalty APR.
You might also notice phrasing in the terms and conditions along the lines of “This APR will vary with the market based on the Prime Rate.” This means that your lender can raise or lower your interest rate based on the way the Prime Rate (a national index used by banks to determine consumer interest rates) fluctuates. Since the Prime Rate is tied to the Federal Reserve interest rate, expect to see your interest rate shift up or down in response to changes made by the Federal Reserve.
These aren’t the only economic conditions that can affect your credit card interest rates. If “market conditions” are listed as possible grounds for an interest rate change within your card’s terms, your rate could also increase during a period of credit tightening.
Finally, any credit card with a promotional introductory APR, such as a zero percent interest offer on purchases for the first 12 months will have an increased interest rate after the promotional period is over, as the card’s regular variable APR rate kicks in.
Lenders are required to give notice before raising rates
According to the Credit Card Act of 2009, credit card issuers are required to give you 45 days notice before raising your interest rates. That gives you the opportunity to pay off any outstanding balances before the new interest rate kicks in.
It also allows you time to weigh the pros and cons of canceling your credit card instead of accepting the increase—though you should be aware that card cancellations can negatively affect your credit score. If you don’t like your new interest rate, consider switching the majority of your spending to another credit card and only putting enough purchases on the original card to keep it active.
When to expect lowered interest rates
What goes up may come down, depending on a few factors. If the Prime Rate or the Federal Reserve interest rate goes down, for example, you could see your credit card interest go down as well.
If you are currently under a penalty APR, however, you might have to wait up to half a year for your interest rate to drop. The Credit Card Act of 2009 states that lenders must review penalty APRs no later than six months after they were implemented, with the option to reduce the APR based on your credit habits during the penalty period.
Your credit card fine print should clarify what happens in the case of a penalty APR; it might read something like “The Penalty APR will continue to apply until after you have made timely payments, with no returned payments during the six months being reviewed.”
How to negotiate a lower interest rate
If you aren’t happy with your current interest rate, it is possible to contact your credit card issuer and negotiate a lower interest rate. Here are a few situations in which it might be a good idea to give your bank or credit card issuer a call:
- You have excellent credit and want to remove a market-based interest rate hike.
- You have been under a penalty APR for more than six months but haven’t seen your interest rates go down.
- You are receiving new credit card offers that include lower interest rates than what your current card is offering.
When you make the call, be prepared to advocate for your strengths as a cardholder, such as your credit score or your history of on-time payments—and be prepared to let your credit card issuer know that you might be considering other credit card options. Use this script as your guide, and don’t put off making the call. Remember, every percentage point counts.
The bottom line
Banks and credit card companies can increase your interest rates. You may avoid hefty penalty APRs by always making at least your minimum payment on time, but your interest rate might still go up—or down—depending on outside forces like Prime Rate changes.
Although minor interest rate shifts associated with the Prime Rate shouldn’t affect many consumers, it is possible to contact your bank or credit card issuer and negotiate a lower interest rate.