Why Is My Credit Card Interest Rate Going Up? 4 Common Reasons

Independent guide - not affiliated with or endorsed by any card issuer, bank, card network or credit bureau. Check the terms of your own account through your issuer's official website, app or statements.

Why is my credit card interest rate going up? There are four usual reasons: your card has a variable APR that rose with the prime rate, a promotional rate ended, you paid more than 60 days late, or the issuer changed your terms with 45 days' notice. Federal rules limit most increases in the first year and generally stop issuers from raising the rate on your existing balance.

The CARD Act, implemented through Regulation Z, sets out when a card issuer can raise your annual percentage rate (APR), how much notice it has to give and which balances the new rate can apply to. This guide explains each reason in plain terms, how to tell which one applies to you, and what you can do about it. It is written for US cardholders.

Reason 1: your card has a variable APR

Most US credit cards have a variable APR. It is set as an index, usually the prime rate, plus a fixed margin stated in your card agreement. When the index rises, your APR rises automatically; when it falls, your APR falls too.

The prime rate generally moves with the federal funds rate set by the Federal Reserve. So when the Fed raises or lowers its target range, card APRs tied to prime tend to follow within a billing cycle or two. The Federal Reserve publishes the bank prime loan rate in its H.15 release.

Because this kind of change follows a formula you agreed to when you opened the account, Regulation Z allows it without a separate 45-day advance notice; you will see the new rate on your statement. If your rate went up by the same amount as a recent prime rate change, this is almost certainly the cause.

Reason 2: a promotional or introductory rate ended

If you opened a card with a 0% or reduced introductory APR, or moved a balance at a promotional rate, the rate goes up to the standard APR when the promotion expires. Regulation Z generally requires these promotional rates to last at least six months, and the issuer must have disclosed in advance the rate that applies afterwards. Check your account opening disclosures or the promotional terms on your statement for the end date.

Plan for the end date before it arrives. Our guide on how a balance transfer works covers what happens to a remaining promotional balance and how to avoid being caught out.

Reason 3: you paid late (penalty APR)

Many card agreements include a penalty APR. Under Regulation Z, an issuer can apply a higher rate to your existing balance because of late payment only if your required minimum payment is more than 60 days past due, and only after sending a notice at least 45 days before the increase. If it does, it must end the increase once you make six consecutive on-time minimum payments, starting with the first payment due after the increase takes effect.

An issuer can also raise the rate on new transactions after an earlier missed payment, using the general 45-day notice rules below, once the account is more than a year old.

Reason 4: the issuer changed your terms

After the first year of your account, an issuer can raise your APR for other reasons, such as a change in your credit profile or in market conditions, but it must give you written notice at least 45 days before the increase takes effect. In that case:

• The new rate generally applies only to new transactions. Purchases made before the increase, and generally those made within a short period after the notice, keep the old rate, subject to the exceptions in this guide.
• The issuer must review the increase. Under Regulation Z section 1026.59, an issuer that raises a rate based on your credit risk, market conditions or other factors must review the account at least once every six months and reduce the rate if the review shows a reduction is warranted.
• Read the notice carefully. It explains what is changing, when, and what options you have.

Can an issuer raise your rate in the first year?

Generally not. Regulation Z prohibits APR increases during the first year after an account is opened, with limited exceptions: when a disclosed promotional rate expires, when a variable rate follows its index, when a payment is more than 60 days late, and in a few narrow situations such as the end of a hardship arrangement. After the first year, increases on new transactions are allowed with 45 days' notice, as described above.

How to work out which reason applies

1. Look at your latest statement. The interest charge section lists each APR and whether it is variable.
2. Compare it with the prime rate. If the change matches a recent prime rate move, it is index-driven.
3. Check for a notice. Search your mail and secure messages for a change-in-terms or rate-increase notice from the last few months.
4. Check promotion end dates. Introductory and balance transfer rates have a stated end date.
5. Review your payment history for any payment more than 60 days late.

What you can do about a higher rate

• Pay the statement balance in full. On a card with a grace period, the APR does not matter if you never carry a balance. Our guide on how credit card interest works explains why.
• Ask for a lower rate. Issuers sometimes agree, especially for long-standing customers with a good payment record. Ask through your issuer's app or official channels.
• Pay down the highest-rate balance first. Payments above the minimum generally go to the highest-rate balance anyway; adding more each month speeds that up.
• Consider moving the balance, but only after reading the transfer terms; see how to avoid credit card interest and fees.
• Think before closing the card. Closing it can raise your utilization and does not erase the balance you owe. Our guide on whether it is bad to close a credit card sets out the trade-offs.

If you believe an issuer raised your rate without the required notice, or applied it to balances it should not have, contact the issuer first and keep records. You can also submit a complaint to the CFPB.

Sources

• CFPB: Regulation Z, 12 CFR 1026.55 (limits on increasing APRs)
• CFPB: Regulation Z, 12 CFR 1026.9 (change-in-terms and rate increase notices)
• CFPB: Regulation Z, 12 CFR 1026.59 (reevaluation of rate increases)
• Federal Reserve: Selected interest rates (H.15), including the bank prime loan rate
• Federal Reserve: Open market operations and the federal funds target range