When Can a Credit Card Issuer Change My Interest Rate?

Credit card companies can’t change your card’s interest rate on a whim. As a cardholder, you have legal protections. The Credit CARD Act of 2009 has rules for rate increases and other changes to your account.

A credit card issuer normally needs to give you 45 days’ notice to raise your interest rate. But there are situations where this advance notice isn’t required.

When a Credit Card Issuer Can Change Your Interest Rate

Generally, card issuers can only raise interest rates after your credit card has been open for at least one year. The CARD Act prohibits interest rate increases during the first year. Card issuers also need to provide you with proper notice first. The law defines proper notice as 45 days or more.

These rules don’t apply in the following situations:

• Your credit card has a variable rate and the index rate changes.

• Your credit card has a promotional rate that ends.

• Your payment is 60 days past due.

In each case, a card issuer could raise your rates without notice, including during the first year. Here are more details on the exceptions to the typical rules.

Your credit card has a variable rate and the index rate changes

Most credit cards have variable interest rates. A variable APR (annual percentage rate) can go up or down over time. Variable APRs are tied to an index or benchmark rate, often the prime rate. The prime rate is a short-term interest rate used by U.S. banks.

When the index rate changes, a variable APR could also change. If you open a new credit card with a variable rate, you’ve basically preauthorized the card issuer to change the rate with each change in the index.

Let’s say your credit card has a variable APR of 17% plus the prime rate, and the prime rate is 7%. Your card would have a rate of 24% (17% plus 7%). If the prime rate goes up to 7.5%, then your card issuer could raise your card’s rate to 24.5%. The card issuer wouldn’t need to give you notice, because your card has a variable APR.

A promotional rate ends

Some credit cards start you off with a lower promotional rate. The most common example is a 0% promotional APR. The promotional rate could apply to purchases you make, balance transfers from other cards, or both. Promotional rates generally last from six to 24 months, depending on the card.

Your card’s rate will increase after a promotional APR ends. The card issuer doesn’t need to provide 45 days’ notice. You’ve technically already received notice and agreed to the terms when you opened the card.

If your credit card has a promotional rate, try to pay off your balance within the promotional period. You could avoid interest charges entirely by getting rid of your balance before the rate goes up.

Your payment is late by 60 days or more

If you haven’t made your credit card payment for 60 days, the card issuer can impose a penalty APR. A penalty APR is higher than the standard rate, and usually much higher. With many credit cards, penalty rates can be as high as 29.99%.

Your card issuer doesn’t need to give you notice of a penalty APR. It’s part of your cardholder agreement, so you consent to it when you open the card.

On the bright side, a penalty APR doesn’t need to be permanent. By law, your card issuer must reinstate the old rate if you make six consecutive on-time payments of at least your minimum balance.

Does the Higher Interest Rate Apply to Your Existing Balance?

When a credit card issuer raises your interest rate, the higher rate can only apply to new charges. The new rate can’t apply to any existing balance you already had on your card.

Once again, there are exceptions to this rule. Most of them are the same exceptions as before. A rate increase can apply to an existing balance if:

• Your card’s variable rate changed.

• A promotional rate ended.

• Your payment is at least 60 days late.

• You were on a debt settlement agreement with the card issuer and didn’t make your required payments.

For example, you have a balance of $1,000 on your credit card, which has been open over a year. Your card issuer increased the interest rate after giving you 45 days’ notice, but not for any of the reasons listed above. The higher rate would only apply to new purchases, not the existing $1,000 balance.

But let’s say the rate increase was because your promotional rate ended, or for any of the other exceptions to the rule. The new higher rate would apply to your existing balance and your new charges going forward.

What to Do After a Credit Card Rate Hike

You have options if your credit card issuer raised your interest rate. Reach out to your card issuer and ask for a rate reduction. In some cases, card issuers may agree to reduce interest rates, especially if you are going through financial difficulties.

You could also see if you qualify for a debt consolidation loan to get a lower interest rate on your credit card debt. Or, if you’re deep in debt and feeling overwhelmed, a debt relief program could be the best move to take control of your situation.