What Increases Credit Card Interest Rates?

Interest rates on a credit card jump when the borrower does something that suggests he is a higher risk to the creditor.

Interest rates on a credit card jump when the borrower does something that suggests he is a higher risk to the creditor. This usually means the borrower is overusing his credit or paying late, but it could be some sort of external factor that is negatively effecting the creditors profits.

Late Payments

Paying on time is perhaps the most important thing to creditors. Credit bureaus have decided that your payment pattern makes up over a third of your credit score, so failing to pay on time makes you a much riskier borrower. If your payment was less than 30 days overdue and this was a first offense, then call the creditor and ask it to remove it from the record. It may take several months of paying on time before it does, but it is likely to come around.

Exceeding Your Credit Limit

Creditors limit your credit for a reason, and if you exceed that limit they will penalize you with higher interest rates. Sometimes these interest rate hikes are extreme, sometimes going up 10 percent or more, often settling at over 20 percent. Pay the balance down as fast as your can, then call your creditors and ask them to lower the rate. If they refuse, try applying for a card elsewhere and transferring the balance.

High Credit Utilization Ratio

Some borrowers view their credit limit as a goal to spend until they hit it. Borrowers who use all or most of the credit they are limited to are viewed as risky, and their interest rates tend to go up as a result. Pay the balance down until you are using 30 percent or less of the total credit limit, and the rates should go down.

Because They Can

Sometimes a creditor will raise interest rates for all cardholders, regardless of how the cardholders are using them. This can be because of new Federal Trade Commission policy, supply and demand, or some other external factor that will negatively impact the company's profits. In this case, you are granted a specified amount of time to dispute the interest rate hike with the creditor before the new rate takes effect.

If it refuses to lower the rate, you can either pay the total balance before the new rate takes effect, transfer the balance to a new card with another company or accept their new rate.

References

• Avoid Higher Credit Card Interest Rates
• Did your credit card company raise your interest rate?
• Why Banks Are Boosting Credit Card Interest Rates and Fees

Resources

• Avoid Higher Credit Card Interest Rates