Do credit cards change their interest rates?

Do credit cards change their interest rates?

Most credit card interest rates (aka APRs) do change from time to time. They are based on the prime rate, a number dictated by the Federal Reserve. This means when the government raises or lowers its rates, banks will follow suit and adjust credit card interest rates accordingly.

Luckily, interest rate changes do not occur as often as they used to. This is because the Credit Card Act of 2009 outlines that card issuers can raise their rates only under certain conditions, thus protecting cardholders from unfair raises. 

However, this does not mean your card’s APR will never go up.

Below are reasons why changes to your interest rates may occur. 

You have a variable APR

A card's APR fluctuates following prime rate adjustments. 

If prime rates rise, then your card’s APR will also rise. If it falls, the APR will also fall. 

According to the Card Act, you will be notified at least 45 days in advance before any changes to your APR are made. With COVID-19 disrupting the economy, we can expect drops in credit card interest rates in response to emergency financial actions by the government. 

Your promotional offer is ending 

Many credit cards will offer a 0% introductory APR on purchases and/or balance transfers for the first few months of account opening. 

Federal law requires that promotional rates must last at least six months. However, this does not last forever. After it expires, your card’s interest rate will rise to the standard APR. You will be given at least 45 days’ notice before this change goes into effect. 

You are 60 days late on your payments 

When you are 30 days late on your monthly payment, you are typically charged with a late fee. If you still haven’t made your payment after 60 days, your card issuer may penalize you with an increased interest rate. This penalty rate can go as high as 29.99% and applies to your current and future balances. 

To avoid paying unnecessary fees and interest on your account, make sure to keep up with payments. 

Your credit score has dropped 

Creditors are required to periodically review your account and personal information to adjust your interest rates based on changes to circumstances. 

For example, a significant drop to your credit score can cause your interest rate to rise. This increased rate only applies to new purchases. Should you choose to deny this penalty, you have the option of canceling your account after you have paid any outstanding balances. 

For no reason 

Legally, credit card companies have the right to change the interest rate on your credit card for no particular reasons as long as they meet certain conditions. 

For example, after 12-months of your account being open, they must wait before changing the interest rate.  They must also give you a 45 days’ notice in advance. 

Exceptions to these rules outlined by the Card Act are adjustments to prime rates or penalties for missed payments. 

If not given notice ahead of time and you are not given an explanation for the increased interest rate, contact your creditor to resolve the issue at hand.