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Read your credit card agreement carefully. It must state the reasons your credit card interest rate may increase.
Typical triggers include late payments and overlimit transactions, the expiration of an introductory annual percentage rate, or APR, or prime rate movement — if the card has a variable rate.
You may find more arbitrary rate-raising conditions buried in the fine print. If the bank states that it can impose the penalty rate if you pay other lenders late, this means the bank practices universal default. One slip-up with an unrelated creditor and your rate could skyrocket.
Your rate may also soar due to a review of your credit history. Checking your credit is a more subtle way of practicing universal default, since the bank can raise your rate based on behavior unconnected to the account, such as delinquencies to other creditors, or opening up too many new credit cards. If “market conditions” are listed as possible grounds, your rate could go up in a rough lending environment. “At any time for any reason” phrasing means the company can jack your APR whenever it pleases. The higher rate usually applies not only to new transactions, but also to existing balances.
Federal Regulation Z, which implements the Truth in Lending Act, requires banks to provide 15 days’ notice before a rate increase takes effect. If the consumer triggers a penalty rate through delinquency or default, the issuer doesn’t have to provide advance notice. The burden falls on the consumer to keep tabs on the account.
New rules approved by the Federal Reserve in December 2008 will end the practice of universal default on existing balances. Banks can raise the rate on existing balances only if the increase was due to the expiration of a previously disclosed promotional rate, index-related movement, or if the consumer paid more than 30 days late. Issuers can increase the rate going forward after the first year the cardholder has the card by providing 45 days’ advance notice. Consumers will even get a 45-day heads up if they trigger the default rate through delinquency. Banks must implement the changes to their policies by July 2010.