A Guide to Rising Credit Card Rates
Anyone who has owned a credit card within the last decade has been subjected to rising interest rates, regardless of their credit score or financial habits. Unfortunately, most cardholders are not aware of the change until a statement arrives in the mail with elevated interest charges.
Some individuals with exceptional credit become outraged about the change and try to close the credit account while some charges remain outstanding. While this may seem like the fair and just course of action, it will often result in damage to the credit score. The following information can help anyone deal with and prevent rising interest rates in the right way.
Why Interest Rates Change
Interest rates tend to fluctuate as often as the economy does, which makes them just as unpredictable. In most cases an interest rate change is caused by poor financial decisions, that lead to a lower credit score. Every three months financial institutions acquire a credit report for each customer, and if the credit score has been lowered, then the interest rate will generally rise. However, most people tend to believe that their interest rates will not rise if they have exceptional credit or fixed interest rates. Unfortunately this is far form the truth because most banks have no choice in the matter.
What to Do After an Interest Rate Change
Sadly, there isn’t much a consumer can do to lower their interest rate or change the card balance after the rate has been raised. In fact, credit card companies are only legally bound to notify consumers of fee changes, and are allowed to change interest rates at their discretion. Rebelling against the card issuer and refusing to pay, or shutting down the account, is only going to make the situation worse because any future card will carry higher rates from the impact this decision will have on the credit score.
Thus, the best course of action would be to pay off the balance in full, and then apply for another credit card with a long introductory period. An alternative option would be to apply for a balance transfer card and then consolidate the current debt to the new card. Doing this will eliminate any new interest charges, and provide a new credit card with 0% interest for about 6-12 months, depending on the credit score and card issuer.
How to Avoid Rising Interest Rates
Financial awareness and responsibility is the best way to avoid rising interest rates. Be sure to carefully review the credit card statement each month, and maybe even purchase a credit monitoring service that will send immediate notifications via email or phone when interest rates rise. Interest rate changes caused by the economy cannot be avoided, however, paying the monthly bill on time, paying more than the minimum, and keeping at least 30% of the credit line available at all times, is the best way to avoid interest rate changes caused by cardholder error.