Can Credit Cards Change the Rate if You Pay on Time?
Under the Credit Card Accountability, Responsibility and Disclosure Act (CARD), there are several measures intended to protect American consumers from the aggressive practices sometimes used by credit card companies. The CARD Act led to changes in how your credit card company could adjust interest rates on existing balances and regulated how credit card companies communicated those changes in terms to the consumer.
Existing Purchases
Under the CARD Act of 2009, once you have secured approval on a rate offered by a credit card company, the rate is generally fixed until you pay it off or are more than 60 days late in paying. This protection doesn’t apply in two cases, though. The first is if you have a variable rate card, and the second is if you use a limited-time promotional rate. Both of these conditions must be publicly disclosed to the consumer.
Variable Rate Credit Cards
If your credit card has a variable rate, the interest rate that you pay on new and existing charges can change. The interest on these cards is calculated by adding an index rate to an additional margin. If the index rate changes, your credit card’s rate will automatically change with it and your card issuer won’t have to send you a special disclosure. Whether or not your credit card has a variable rate will be stated upfront, before you apply for it. Read the fine print regarding your new credit card’s interest rate to ensure you know what you´re signing up for. If you’re seeking new credit, you should easily be able to determine if the card you’re considering has a variable interest rate.
Fixed Rate Credit Cards
With a fixed rate credit card, your credit card issuer can’t change the rate you pay on existing charges if you pay on time. It can, however, change your rate for new purchases as often as your credit card agreement allows. Generally, your credit card issuer will give you a written warning before it does so. Your card issuer cannot, however, check your credit report after they’ve given you a card and raise your rates based on new information.
Promotional Rates
Sometimes, credit card companies offer special promotional rates. The offer may be for new purchases, specific types of purchases or purchases from a specific vendor, or for balance transfers. When you are offered a promotional rate (as can be the case in an offer like “a special introductory rate”), the credit card company has to let you know how long the rate lasts and the rate you will end up paying when the promotional rate expires. When the promotional rate expires, your card issuer can automatically raise the rate in accordance with your agreement without sending advanced notification.
If you find that your credit card interest is too high or vary too often, there are options for negotiating a better rate. Review your credit report and communicate your requests with your creditors. Create a plan for paying off your credit cards and learn to budget appropriately for your credit card payments. Learning how your credit card interest impacts your personal finances can be key to establishing a healthy credit profile.
About the Author
Solomon Poretsky has been a writer since 1996, with experience in the fields of financial services, real estate and technology. Poretsky holds a Bachelor of Arts in political science from Columbia University.
