A recent question reminded me that there are a lot of things to know about credit cards, and one of those things to know is that the interest rate with which you start may not be the interest rate that you'll have for the entire time you have the card.
Your credit card company can’t just change the rate on your card whenever they want — but there are a number of circumstances in which your rate can change. There are three main reasons why your interest rate may change:
- New credit cards often have promotional rates to encourage new customers. These rates can be much lower than the regular rates on the card, even as low as zero percent. These introductory rates have a set term, often 12 or 18 months, after which the original agreement states that the interest rate will rise to the "regular rate on the card.
- Late payments, returned payments, or going over your credit limit may trigger a "penalty rate." Penalty rates are much higher than the regular rate on the card. This must all be listed in the original card agreement, but most people don't read all the fine print.
- Credit card companies may raise rates at any time provided that they give their customers proper notification. Be sure to read all mail and email from your credit card company. Often it is junk mail, containing only advertisements, but sometimes there is important stuff in there.
What Should I Do If My Rate Goes Up?
You have a couple of options if your interest rate goes up.
- The best choice is to pay off the balance on your card.
- If that is not possible, give the credit card company a call and ask them to lower your interest rate. Many companies will, especially if you tell them that you will move the balance to another card if they can not help you.
- Next option is to transfer the balance to an existing credit card account. Look through your cards to see if any are offering free balance transfers and promotional interest rates.
- As a last resort, you may consider opening a new credit account. I rarely recommend this, as it can create more trouble than benefit. Weight your options carefully and perhaps check with a money-savvy friend or relative before making any decisions.