What is a credit card penalty rate?

A credit card penalty rate is an increased interest rate that can drastically affect your credit card payments. Credit cards are a very useful tool to have for those who are responsible in their use of them. Being responsible in managing credit can positively impact your credit score and rebuild credit for those who need it. However, there are many things that credit card companies do in their charging practices that many consumers may not be aware of. One of them is the application of these penalty rates.

Credit Card Penalty Rate Definition

Some credit card companies have a penalty rate that they assess to cardholders under certain circumstances. This is simply an increase in the interest rate that the individual is charged on balances. A penalty rate can be almost as high 32%. All the information that any credit card holder needs to know concerning his or her credit card company’s policies about penalty rates can be found in the terms and conditions of the card. The penalty rate is imposed by the car issuer as a result of the cardholder making a mistake in the handling of his or her card.

Causes of Penalty Rates

There are three things that typically tend to cause card issuers to impose penalty rates. The cardholder who can avoid doing these things will be able to keep his rate at its preset level. Depending on the contract you have with your credit card company, the penalty rates may be imposed on a first offense or subsequent offense as punishment and as a deterrent.

The most common cause of penalty rates is being late with a payment. Credit card payments are set for a certain date and if a cardholder is simply a day late he can be penalized as much as someone who is weeks late. Another surprising fact is that payments set up online can actually be late, as many systems do not allow for instantaneous processing and the payment will post several days later to the account, causing a penalty rate to be activated. Plan to pay your credit card a week in advance to avoid this problem.

If you pay your credit card payments using a check and you bounce a check to the credit card issuer, expect to have consequences. This is another of the common reasons for penalty rates to be triggered.

Going over your spending limit may also cause a penalty rate to be applied to your account. A little more flexibility is often given with this type of issue and the penalty rate is often not put in place after the initial occurrence. However, if the problem is repeated, expect that higher interest rate to take effect.

In short, poor habits in terms of credit card use and payments lead to penalty rates. If you are responsible and use good habits with your credit card, you can easily avoid having to pay these very high penalties. In addition, if you have already gotten penalty rates imposed on your credit card account, contact the company and discuss how you can go about having them removed. A preset time period with all payments being timely should be enough to have the penalty removed. If the company refuses to discuss removing it, start shopping around for a new credit card and transfer your balance.

Company Differences with Penalty Rates

Some credit card issuers are more forgiving that others and will allow a mistake or two in going over the limit, being late with a payment or bouncing a payment check. These issuers usually have a policy that states that a second or third problem with the card will trigger the raised interest rate punishment.

The companies that are most likely to have very strong rules in terms of imposing penalty rates are the companies who specialize in high risk credit cards. They are the ones most likely to lose their money simply because of the clients they choose. Therefore, when one starts to get sloppy with payments and use of the card, he or she will be punished right away to deter further issues and to help the lender recuperate as much money as possible.

For anyone who is looking for a new credit card, one of the best places to start is by using the consumer tool on our home page. You simply answer a few questions as prompted by the Chaser tool, to give it parameters to use and the tool will do all the searching for you. In a matter of moments you will be given all the information you need to compare and contrast a variety of credit cards that meet your needs. Be sure to read the fine print and understand the penalty rates that the card may have before deciding. Get started finding the best credit card offers now by checking out the free Credit Card Chaser tool!

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Disclaimer: This content is not provided or commissioned by American Express, Visa, MasterCard, Discover, or any other credit card company or issuer. The opinions expressed here are the author's alone, not those of any credit card company or issuer, and have not been reviewed, approved or otherwise endorsed by any credit card company or issuer. Credit Card Chaser may be compensated through various affiliate programs with advertisers. As always, Credit Card Chaser is an independent website commmitted to helping people research credit card offers and find the best credit card!