5 Reasons a Credit Card Company Can Raise Your APR

Most credit cards are issued with adjustable annual percentage rates, APR. This means the rate can go up or down during the time you have the loan open. Your behavior and the market's behavior can both impact your variable rate credit card.

#1  You Miss a Payment

Revolving credit lines, like credit cards, are very flexible in terms of payment. You do not have to pay down your balance at any given time. You do, however, have to make minimum payments as long as you have a balance on the card. Missing just one of these payments can cause your APR to increase. Your credit score will also drop if you miss a monthly payment.

#2  Your Credit Score Drops

When your credit score drops, any open variable rate loan you have may adjust to a higher rate. This is true whether your score drops because of activity on the actual credit card or because of another loan. For example, if you take out a mortgage, your credit score may drop because your debt load increases dramatically. As a result, the APR on your open credit cards may rise.

#3  National Prime Rate Increases

The national prime interest rate is set regularly by the Federal Reserve to encourage borrowing while curbing inflation. Banks typically charge a given rate over the prime rate, because the prime rate is what they themselves are paying to borrow money. When the prime rate goes up, banks and credit card companies are being charged more for their financing. They will pass this rate hike onto you. Typically, the national prime rate goes up when the economy is strong. A strong economy may also be a time of great prosperity for a credit card company. These two factors can counteract each other to create a more stable APR.

#4  The Bank Suffers Losses

On the other hand, when the economy is down, the credit card company may raise your rates even if the national prime rate drops. This happens because credit card companies lose a lot of money when the economy is suffering. More people default on their loans during economic downturns. To recover from these losses, banks and credit card companies need to make more money on their existing loans. Even if you are a responsible borrower with good credit who always makes payments, your APR may rise.

#5  You Don't Stop Them

Ultimately, credit card companies raise your APR because they can. They stand to make more money at the higher rate. There is little stopping them from doing this, then, except a refusal on your part. If your company notifies you to inform you there will be a rate hike on your credit card, call immediately to ask why. Often, your simple complaint about the rate hike may be enough to prevent a higher APR. This is particularly true if the reasons for the raise are not related to your personal financial performance on the loan.


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