All good things eventually come to an end including low interest rates on credit cards. In a world that is going plastic, it is almost inconceivable not to have a credit card. Nevertheless, when the rates change, it can hurt our budgets. Credit card rates seem to be rising more and more every day.
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The average person has at least two credit cards. Your payment history and credit score determine your interest rate. If you see an increase in your credit card interest rate, you might want to investigate what caused the increase.
Some Interest Rates Have Lessened, but Others Have Skyrocketed
Simply put, yes. Overall consumer credit card rates have dropped minutely, but rewards credit card rates have shown quite an increase. Some of the higher end rewards cards require you to rack up more points than ever before in order to collect any rewards while still requiring an annual fee.
Interest rates for student credit cards have also been increasing. Students are usually just starting out and have little or no credit. They are considered as high-risk, so their rates will start out higher as well.
Interest rates are determined with a scoring system based on which consumers are most likely to repay their debt that is accumulated on their credit cards. Your risk is lowered if you have a history of making timely payments, which will increase your credit score.
The higher the credit score, the lower your interest rate is.
The Federal Trade Commission (FTC) gives a great breakdown of how issuers use the scoring system to rate your credit and what you can do to improve your credit score. If your credit score improves, your credit card interest rates could be lowered. You can read more at the Federal Trade Commission website .
Consumers are Protected Under the Law
According to the Credit Card Accountability Responsibility and Disclosure Act of 2009 (which went into effect in 2010), issuing organizations are required by law to provide a 45-day written notice to their customers regarding any increase in credit card rates. This Act also states that no credit card issuer can penalize any customer, regardless of their balance, more than a $35 late fee.
Because of the new restrictions placed upon credit card issuing organizations, they have found new ways to recoup their losses. New customers are often approved at higher rates than what existing customers are charged.
Ways to Avoid Paying High Interest Rates
Just because you cannot afford the interest that comes along with your credit card does not mean that you cannot afford the card itself. By being a responsible consumer, you can have your cake and eat it, too. Only charge what you can afford to pay off by the end of that month. By making this small budgetary adjustment, you can use your credit card without having to succumb to those awful interest charges.
When the issuer decides to change your credit card’s interest rate, you have a period in which you may reject the rate increase by opting out. Your account will be closed, but you will be allowed to pay off the balance of the credit card at your current rate.
If you want to keep your account open, pay off the balance before the new interest rate is applied. Then your wallet will not feel the pain of the increase.
It also never hurts to call your issuing company and simply request a lower rate. Sometimes this is effective, but not always. Depending on why your rate is being increased, they may negotiate to lower it or at the very least keep it at the current rate.
Poor Credit Makes Interest Rates Rise
People with poor credit are a higher risk than someone with good credit. The higher the risk, the higher the interest rates are. If you have miss payments, have late payments, go over your limit, or abuse your credit card in some other manner, the issuing company will undoubtedly raise your interest rate.
If you want to get a lower interest rate, try to keep your credit score as high as possible. You are entitled by law to a free credit report once a year from the three main credit-reporting organizations at AnnualCreditReport.com. The better your credit score, the more negotiating power you have when requesting a lower interest rate.
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