5 Reasons a Credit Card Company will Increase Your Interest Rate

It is illegal for a credit card company to increase the interest rate on existing debt. However, the company can raise the rate on future charges. If so, the company must notify you by mail. These protections allow you to better track your rate, cost and future payments. A credit card company can raise your rate for a wide array of reasons.

#1 You Miss a Payment

Missing a credit card payment will make all of your future debts more expensive. If you allow a payment to be 30 days late, a derogatory item will be placed on your credit history. The bank will alert the credit bureaus to start this process, and the marks will continue to show up until you resolve your payments. The credit card company may raise your rate. Other adjustable rate loans you have may go up as well. When you go to apply for a new loan, you will have a higher rate due to the indiscretion.

#2 A High Balance

You should aim to keep your balance between 5-10% in any given month. Ideally, you will be paying off your balance each month. However, if this is not possible, you do not want to have more than a minimum you can afford on your card. If you routinely make only minimum payments instead of paying down balances, you will end up being assessed a greater rate on your future charges.

#3 Your Credit Drops

Your credit may drop due to loans other than your credit card, but your credit card rate will still suffer. If you take on an additional debt, for example, you may see your rate go up. This is because the credit card company is afraid there is a greater chance you will default on the money you owe them. To protect against this, your monthly payments will rise along with your interest rate.

#4 Bad Economy

There are reasons outside of your personal behavior that may affect your score. If you are a person who uses and pays down debt regularly, your creditor may see you as a good source of income. If the company is hurting due to a recession or slow purchasing period, raising your debt may help cover some of the losses the company is sustaining in other areas. People who rarely use or abuse their debt will also be penalized, and credit companies may choose to cancel cards to stop losses if a person is not making enough payments.

#5 Because They Can

Ultimately, a credit card company makes more money when your rates are higher. It is uncommon for a person to change companies over a small rate issue, and many people will simply choose to accept the higher interest but attempt to make fewer charges. Americans are not known for being responsible with credit card debt, so the companies see little impact of raising a rate in the end. People usually keep spending and simply pay more for their purchases. If you threaten to leave your company, they may try to lower your rate again to keep you.


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