1. The card launch period ends
Some credit cards attract new customers with a 0% APR introductory period of six to 21 months. During this time, any balance carried over from one month to the next will not bear interest, but upon the end of this period, you will automatically switch to the standard purchase APR.
Your card issuer does not have to notify you of this change, as it is described in your cardholder agreement. You need to remember when the introductory period ends on your own and take steps to pay off your debt before that deadline so that you don’t have to pay expensive interest charges.
2. The card has a variable APR linked to the prime rate
Most credit card issuers charge customers a variable APR linked to the prime rate. The prime rate is a benchmark that banks use to set their interest rates on loans and credit cards. The Federal Reserve sets what’s called a target federal funds rate, which is the interest rate it recommends banks charge each other when they lend money. The Wall Street Journal then polls the big banks to determine the average rates banks charge each other, and then publishes its findings as the prime rate. This is typically the target federal funds rate plus 3%.
You don’t need to understand how it all works, but you do need to understand how the prime rate might affect your credit card interest rate. If the prime rate goes up, your credit card’s APR will likely go up as well. Likewise, if the prime rate goes down, your card’s APR may also go down. Your card issuer does not have to notify you of these changes, as this is also usually described in the cardholder’s agreement.
3. You are more than 60 days late on a payment
Some cardholders apply an APR penalty if you are more than 60 days late on a payment. This is a much higher APR that applies to your outstanding balance and any new purchases you make. The penalty APR will vary depending on your creditworthiness and the card you made the late payment on, but it can be as high as 29.99%. If you have multiple credit cards with the same issuer, this could impose an APR penalty on all of your cards, even if you only paid late on one.
Typically, your penalty APR will remain in effect until you have made at least six payments on time. After that, by law, the card issuer must reduce the APR on your outstanding balance to your previous interest rate. However, he can continue to charge the penalty APR on new purchases indefinitely. In this case, you may have no choice but to transfer your balance to a new card from another issuer in order to get rid of it.
4. Your credit score has changed dramatically
Credit card APRs are based in part on your credit score. A high credit score indicates that you are responsible for your money and able to repay what you borrow, while a low credit score indicates an increased risk of default. This concerns credit card issuers, which basically give you money with no way to easily recoup their losses in the event of default. Thus, they charge higher interest rates to borrowers with poor credit so that the credit card issuer does not spend so much money if the borrower does not pay back what they owe.
Credit card issuers periodically conduct reviews of their customers, and if your credit score has dropped significantly, your card issuer may increase your interest rate. In this case, you will be given 45 days notice so that you have time to pay off any debt or cancel the card if you wish.
Unfortunately, your card issuer is unlikely to be generous enough to lower your APR if your credit score improves significantly, but you can negotiate that. Contact your card issuer, explain your situation and ask them to reduce your APR. They don’t have to comply, but chances are they will if you are polite, but firm, and threaten to leave for another card issuer.
5. One year has passed since you got the credit card
The Credit Cards Act 2009 prohibits card issuers from changing your card’s APR during the first year you own the card, with a few exceptions, such as the end of a promotional period, changing the card’s APR. prime rate or APR penalty goes into effect. But as soon as a year is up, all bets are off and your card issuer could increase your APR just because they want to.
It needs to give you 45 days notice before increasing your APR and if you don’t want to pay extra you can call your card issuer to negotiate or cancel your card and open a new one instead.
The APR on your credit card might not matter much to you if you are still paying off your entire balance each month. But if you’re known to have an occasional balance, it’s important to understand how much it’s going to cost you and how your APR might change.
Your cardholder agreement should describe some of the circumstances that could affect your APR, and if it isn’t, the card issuer should send you a notice before adopting the new APR. Pay attention to these notices so you don’t have any surprises.