If you got a notice from your bank that your credit card’s annual percentage rate (APR) is going up—or you just noticed it on your own—it’s worth figuring out why. Your APR determines the interest charges you'll pay on your credit card if you carry a balance, and an increase can make it more costly for you to pay off the amount you owe over time. Understanding the reason behind your rate increase can help you determine what you can do—if anything—to bring it back down.
- Your credit card issuer can increase your APR any time after the first year, but may need to give you a 45-day advance notice.
- An advance notice isn't required for certain rate increases, like an increase in your variable APR’s index rate (an interest rate tied to a specific benchmark), the conclusion of a promotional rate, or a 60-day delinquency on payments.
- In certain situations, you may be able to lower your interest rate by making six consecutive on-time payments, or by raising your credit score.
Why Did My Credit Card APR Increase?
There are a number of reasons your rate could have increased, but thankfully, not as many as there once were. The Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009 introduced several new protections regarding interest rate changes. For example, the law made it so that credit card issuers can usually only increase your APR on purchases made in the current billing cycle and going forward—but not on existing balances from previous months. It also eliminated something called universal default, which allowed credit card issuers to raise your rate if you’d defaulted on a loan from a different lender. And it banned provisions that let card issuers change your APR at any time, for any reason.
Now, credit card issuers have more restrictions. That said, there are some situations where a credit card issuer can legally raise your rate, sometimes without telling you in advance. Here are the most common ones:
Your Card Had a Promotional Rate
Credit cards with a promotional rate allow you to take advantage of a low interest rate on purchases or balance transfers (or both) for a predetermined number of months or billing cycles. After the promotional period expires, the regular, higher APR kicks in on your existing balance and any new purchases.
By law, a promotional rate must last at least six months, unless you fall behind on your payments by more than 60 days.
Credit card issuers are required to let you know how long a promotional rate will last, and the interest rate you can expect to pay once the promotional rate expires. Check your credit card agreement or billing statement to determine if a promotional APR is currently being applied to your transactions and any balances you may be carrying.
You Made a Late Payment
The law requires card issuers to be forgiving with your APR if you slip up and pay late by a few days—or even a month (though the card company can still hit you with a late fee). However, your credit card APR may increase to the penalty rate—typically the highest interest rate listed on your card agreement—if you fall behind on your payments by 60 days or more.
The Credit Card Has a Variable APR
If your credit card has a variable APR (most do), your APR may increase in step with an index rate it’s linked to. Many credit cards with variable APRs use the prime rate—the rate banks give their best customers—as their index rate.
Banks set the prime rate based on the federal funds rate, which is the rate banks charge each other for loans. If you hear that the Federal Reserve is raising interest rates, that refers to the federal funds rate, and you can expect your credit card rate to go up eventually as well.The timing for a card rate increase depends on the issuing bank. For example, Capital One adjusts variable APRs at the beginning of each quarter, while Discover adjusts rates monthly.
Your Credit Score Declined
Running up your credit card balances, making late payments, or having too many hard credit inquiries can lower your credit score. (Hard inquiries happen when you apply for a credit card or a loan.) A decline in your credit score could signal to your credit card issuer that you're at risk of falling behind on payments in the next few months. In response, your card issuer may raise your interest rate, but it'll have to give you a 45-day advance notice before doing so.
If you accept the rate increase, your card issuer is required to review your account in six months and lower your interest rate if your credit standing has improved. You can also decline the rate increase by closing your card and paying your balance off at the lower rate, but the issuer may raise your minimum payments to force you to pay off the card faster.
The Card is Over 12 Months Old
For the first year after opening your credit card, you're protected against interest rate increases on new transactions and existing balances, unless:
- You have a variable APR and its index rate increases
- Your promotional or introductory rate has expired
- You fall behind on your minimum payments by more than 60 days
- You're on a payment assistance plan (which gives you a reduced interest rate for a limited time period) and you finish, or fail to pay as arranged in the plan
Once your account is a year old, the credit card issuer is free to raise your interest rate for new transactions for any reason, as long as it provides you with the required 45-day advance notice.
Frequently Asked Questions (FAQs)
Are there any credit card interest rate laws?
The CARD Act sets guidelines on when and how banks can increase a credit card holder’s APR, as described above. There's no federal law that limits credit card interest rates, but some states may have individual laws. For instance, the state where the credit card issuer is headquartered may govern the maximum interest rate the company can charge. Interest rates are also limited for some members of the military. The Servicemembers Civil Relief Act limits interest rates for active duty servicemembers to 6% for credit card balances incurred prior to service.
How can I lower my APR on my credit card?
If your APR was increased because you had a payment more than 60 days past due, you can get your old interest rate back by making six consecutive on-time payments. Raising your credit score may also make you eligible for a lower interest rate, but you may need to contact your issuer and ask for the rate drop.
How does prime rate affect my credit card APR?
If your credit card has a variable APR that relies on the prime rate as its index rate, your APR will go up or down when the prime rate changes. Many credit card issuers reference the prime rate published in The Wall Street Journal, which is based on rates from at least 70% of the 10 largest U.S. banks.