The interest rate on your credit card has a direct impact on the finance charges you get charged each month. The higher your interest rate, the higher your finance charges will be. That means you’ll end up paying a lot more for carrying a balance on your credit card than you would with a lower rate.
Though you might start out with a low rate on your credit card, your credit card issuer could increase your interest rate. Unfortunately, the law currently requires the creditor to notify you only 15 days (in some cases) before your rate increases. This doesn’t give you much time to take action if you want to repay the balance at the lower rate.
Creditors have a slew of reasons for increasing your interest rate. You can usually call to find out why your rate got increased. Based on a 2008 Consumer Action survey, your credit card might have been closed for one of these reasons (note that not all of the reasons are in your control).
- You were late on your credit card payment.
- You were late on a payment to another credit card.
- You got too close to your credit limit.
- You went over your credit limit.
- You got too close or went over your credit limit on another card.
- Your credit score dropped.
- You have too many credit cards.
- You have too much debt.
- Your check bounced.
- You filed bankruptcy.
- You gave the bank false information.
- You fail to adhere to any of the terms in the cardholder agreement.
- You used the card illegally.
- You have a variable rate tied to another interest rate that increased (e.g. the Prime Rate).
- Your credit card issuer’s business strategies changed.
- Market conditions changed.
If your interest rate increases, you have the option of closing the account and paying off the balance at the old interest rate.
