How To Respond To A Rate Increase On Your Credit Card

July 24, 2010

Credit card companies are notorious for increasing interest rates. By law credit card issuers have to send you 15 days notice before increasing your interest rate. What you might not know is you dont always have to accept the higher rate. Here are a few things you can do to keep your interest rate down:

1. Opt-out of the higher rate

When your interest rate increases, you will typically have an opt-out period allowing you to reject the interest rate change. If you opt-out, your account will be shut but you can continue to pay your balance at the lower interest rate.

Suppose you don’t want to close your credit card account because it will injured your credit score. In that case, there are some other things you can do.

2. Negotiate a lower rate

Call the credit card company and get it lowered. If your interest rate increased because of a delinquency or default on your part, you might not be able to get the interest rate decreased. On the other hand, if you’ve always paid your account on time and one slip-up resulted in an increased interest rate, you might be able to speak your card issuer into lowering your interest rate.

3. Pay off the balance

Pay off as much of the balance as you can before the increase goes into effect. If you can lower your balance before the new interest rate takes effect, you won’t feel the brunt of the rate so much. You might have to cut back spending in other areas to put more money toward your credit card balance.

4. Transfer to a lower interest rate card

Transfer the balance to a lower interest rate credit card. Before you do the balance transfer, make sure you have enough available credit to handle the new balance. You might also compare any balance transfer fee against the cost of paying off your balance at the higher interest rate. The balance transfer fee might exceed the additional finance charges you’d pay. In that case, transferring the balance would actually cost you.

5. Accept the changes

Keep the card and pay off the balance at the newer, higher interest rate. Even though it might not be the most desirable solution, it might be the only one available. When none of the other options work, you will have to pay the balance at the higher interest rate. In this case, you should still pay off the balance as quickly as possible to keep from paying high finance charges.

As long as you continue to make your payments on time (to all your accounts) and stay below your credit limit, your credit card issuer might decrease your interest rate after six to twelve months. Don’t be afraid to call and ask for a lower rate if you have to.

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