Although the recently passed Credit Card Act of 2009 put in place greater consumer protections and restrictions on credit card companies, your company can still raise your interest rate at any time. This may be in response to a late payment on your part or simply because the company has chosen to raise its rates in order to make more money off you.
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Be aware if your company does announce a rate increase, you do have options available. Knowing your rights and your options can help you maintain and lower your rate.
What rights do I have when it comes to credit card interest rate increases?
Credit card companies recently were provided with stricter guidelines for doing business, including when and how they can increase interest rates. The Credit Card Act of 2009 is explained in detail on the website MyMoney.gov. This law puts many new restrictions on credit card companies, which were put in place between August 20, 2009 and July 1, 2010. A section on rate increases is included in the law.
Credit card companies must now notify you 45 days in advance when they plan to raise rates unless:
- You have a variable rate card with an index for rate increases
- You were paying an introductory rate that has expired
- You are more than 60 days late on a payment
- Your rate is increasing due to a Workout Agreement you have made with the company in order to pay off your debt
According to SmartMoney, you should be wary of companies offering a credit card variable interest rate. The company does not have to notify you when your rate increase takes place so you must make yourself aware of this by reading your agreement ahead of time. You also should not assume your rate will not rise because it was described as fixed.
A fixed interest rate for credit cards simply means you do not have a variable rate. It does not mean your rate will never increase as it does with a mortgage.
Additional provisions in the new law include:
- Companies cannot increase your rate within twelve months of the time you signed up for the card unless it is a situation with an introductory rate.
- Introductory credit card rates must be in place for at least six months.
- Companies must now disclose how long it will take you to pay off your debt if you only pay the minimum amount each month.
If your credit card company notifies you that they plan to raise your rate, they must provide you with a period, during which you can opt-out of the increased interest rate. If you choose to do so your account will most likely be closed, but you will be able to continue to make payments towards your balance at the old interest rate.
If you are considering opting out of an interest rate increase, make sure you read any correspondence from your credit card company that outlines their instructions for opting out. Typically, you must provide written documentation to do so.
What other options exist?
First, you can try to negotiate a lower rate with your credit card company. When you call to do so, make sure you speak to a manager or supervisor who has the authority to negotiate. If you can find any offers from other credit card companies offering a lower rate before you call you can use these in your negotiations. Make sure the company believes that you are serious and will switch companies if they do not agree to work out a deal.
Another option you have if your credit card company plans to raise interest rates is to pay off as much of your balance as you can and try to improve in your ability to pay off your balance each month. If you do not carry a balance from month-to-month, the rate increase will not really affect you.
Your final option is to:
- Close your card
- Pay off your balance at the lower interest rate
- Switch to a card with a better rate and possibly rewards
Be aware that closing credit cards does negatively affect your credit rating, but depending on the difference in rates, this might be a small price to pay.
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