What Is the Credit Card Default Rate?

Credit card companies can impose certain penalties if you violate the terms and conditions of your credit card. The balance on your credit card can be subject to the default rate which is higher than the standard rate for credit cards.

Significance

If you are late with your credit card payment, by even one day, a credit card company can impose a default rate on your outstanding balance. The average default rate according to creditcards.com is 26.87 percent but some are as high as 31.99 percent.

Effects

A default rate can be initiated by a credit card company when you go over your limit. Not only will you get a higher rate but you also receive an over the limit fee.

Returned Check

A credit card company will implement a default rate if you send in a payment that's returned for non-sufficient funds.

Considerations

Once a default rate goes into effect the amount of interest you pay is significantly higher. If your interest rate is 7 percent on a $7,000 your finance charges will be approximately $40.82 approximately for 30 days of interest. If your default rate is 29 percent your finance charges will be roughly $169.15.

Prevention/Solution

If you are ever late with a payment call the credit card company and try to get your rate lowered to its original status. You will have better success with this technique if you are a long-time customer with a consistent record of on-time payments.

References

• why did your rate increase?
• credit card default rate