Finding a great card that fits your lifestyle and offers a low interest rate can make you feel like you’ve hit the jackpot. But before you do your victory dance, there’s something you need to know. That attractive rate you snagged isn’t set in stone. Here are three reasons issuers can raise your interest rates.
The promotional period has ended
Carrying a balance on a high interest credit card can make it difficult to get out of debt. Which is why many borrowers opt for cards with a 0% APR when they need to make big purchases or consolidate debt. This allows them to repay the borrowed amount without tacking on additional interest. The downside is the promotional rate only lasts for a short period of time. Typically, six months to a little over a year. Once time expires, card issuers can raise your rates without warning. However, your increased rate will only apply to new transactions, not to existing debt. To play it safe, keep track of when your introductory period will end and pay your full balance before then.
Market rates have increased
All credit cards come with either fixed or variable interest rates. While fixed rates generally stay the same, variable rates don’t because they’re based on an index. So, when the market rates move up or down, your interest rate will follow suit. Don’t expect to receive a written notice about the increase either because you probably won’t get one. The variable APR is set by adding the U.S. Prime Rate and the bank’s margin. For instance, if the bank charges a 12% margin and the prime rate is 4.25%, your APR will be 16.25%. Although you can’t control the market rates, you can avoid racking up interest fees by paying your bills on time.
Things are a little different when your card has a fixed APR. In that case, the issuer must provide written notice at least 45 days before raising your rate. You’ll then have the option of accepting the new rate or opting out. If you choose the latter, you’ll be able to pay off your existing debt at the current interest rate. The catch is the card issuer will more than likely close your account. If this happens, your credit score will suffer due to your credit history and available limit being reduced.
Your payment is more than 60 days late
When you lend someone money, you expect to be paid back on-time, right? Well, that’s the same way card issuers feel. Once your minimum payment is more than 60 days late, they can raise your interest rates. It won’t be a slight increase either. Typically, they’ll enforce a penalty APR of 29.9%. They do give you a chance to redeem yourself though. If you make six consecutive on-time payments, they’ll lower your interest to the previous rate. An easy way to guarantee you never miss another due date is to setup automatic bill payments with the creditor. As long as you keep enough money in your checking account, you’re good to go.