Although you can’t avoid them, there are a number of things you can do to respond to rising credit card rates. Credit card companies are businesses that want to make money. One of the ways that they do this is by raising the interest rate on purchases, cash advances, and balance transfers.
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In the past, credit card companies were allowed to increase your rates at anytime and for any reason without giving you much notice of the changes. In February 2010, the Federal Reserve laid out new rules regarding card fees and rates. These were meant to protect the consumer from shady practices by the card companies.
Information Disclosed by the Credit Card Company
Under the new laws set up by the Federal Reserve, your credit card company is required to inform you of certain changes to your terms and account.
Your company must send you a written notification if your rates are going to increase, if there is a change to any of the fees associated with your account, or if there are any other big changes to your terms.
Along with informing you about the changes, the company must also give you advanced notice of at least 45 days before the changes take effect. This is a change from the previous 15-day notice that was required. There are a few circumstances in which the company does not have to give you notice.
Circumstances for No Advance Notice
There are certain times in which your card company can increase your rates and not give you a notice of 45 days. One is that the card you are using has an introductory promotional rate. After the promotional period is over, the rate reverts to the disclosed rate. The company does not have to inform you of this change.
A credit card can have either a fixed rate or a variable rate. If it has a variable rate, it will change according to which index it is tied. If the index goes down, your rate decreases, but if it goes up your rate will increase. Your card company does not have to inform you of this change.
Finally, the credit card company does not have to inform you of a rate increase if it is due to a default of an agreement. If you have worked out a special payment agreement with the company and you miss a payment the company can increase your rate with no advanced notice.
How to React to Increased Rates
If you are given notice that your rates are going to increase there are a number of things that you can do. One is that you can opt out of the new rate. If you choose to do this, you will be able to pay off your balance at the current lower interest rate, but your account will be closed and the card will not be able to be used.
According to Consumer Reports, closing a credit card account can negatively affect your credit score. To avoid this, you may choose to keep the account open.
If you keep the account open, you will be stuck with the higher APR, which will cause you to pay more over the course of the loan. One way to avoid paying the higher rate is to pay off the balance, or as much of it as you can, before the new interest rate is applied.
You can also try to transfer the balance to a new credit card, one that has a low interest rate. This is usually a good idea if you find a card with an introductory rate of 0% and you plan to pay off the balance before the promotional time is expired.
Most cards will charge you a transfer fee, so make sure it makes financial sense to make the transfer.
Another thing you can try is to negotiate a lower rate with your credit card company. It will be especially helpful if they know that you are considering transferring your balance to a different card. Often they will lower your rate in order to keep your business. If you call once and are unable to get a lower rate, keep paying your bill on time and call periodically to request a rate decrease. If your account is in good standing, the credit card company may be willing to change your rate.
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