Can Your Credit Card Company Change Your Interest Rate?

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One of our readers, Paul, had this question for me:

I have a credit card with a large balance but a very low interest rate. I am diligently working on paying it off, and will pay it off in time.

Here is my question. I am concerned that the credit card company may decided to substantially raise my interest rate before it is paid off, even if I make on time payments. I heard there was a way to guarantee them not being able to raise my interest rates by closing the account.

If I close the account and make the payments ontime, would this guarantee that they could never raise my interest rate until the current balance is paid off.

I am not interested in getting additional credit from them, but rather just freezing the current interest rate on the current balance.

This is a promotional interest rate for the life of the loan. They say they won’t raise it as long as I am on time with my payments, but I have heard horror stories from people saying that banks still raise interest rates even when they are on time with their payments.

That’s a really good question Paul.

You are right to worry that your credit card company will raise your interest rate. If it will take you a year or more to pay down the balance then there is probably a good chance that your credit card company will try to raise your interest rate at some point.

So, what can you do?

The fact is, your credit card company can raise your interest rate whether the account is closed or not. In my opinion, they are probably more likely to raise your interest rates on a closed account than an open one. (That is just my opinion though, from my experience.)

BUT, they cannot raise your interest rate without notifying you first. It should not ever be something that will come as a surprise to you – you will get a letter in the mail, or a notice when you log on to your account online.

If they do raise your interest rates, you have several options:

  • You can send your credit card company a certified letter stating that you refuse the interest rate hike, and close the account at that point - That should freeze the interest rate. However if you ever make even one late payment after your reject the new terms and conditions your interest rate will most likely be raised again.
  • You can call and ask your credit card company to lower your interest rate again - This works best if the account is open, but it can also be done after you close it out. Whether or not this will work depends on your payment history, and the policies of the credit card company. Threatening to balance transfer your debt is the most effective weapon you will have if you need to call them.
  • You can actually balance transfer all of part of the debt to a new account with a lower interest rate – This is a last resort obviously, but just be aware that you do have options. We’ve reviewed some of the best balance transfer credit cards. You can bookmark this page in case you need it later, and use the link to see which cards might benefit you.

The best advice I can give you is to not preemptively close your account out. If you close the account, and then they raise your interest rates, you will not have anything to fall back on when you negotiate with your credit card company.

Thanks for your question!

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3 Responses to “Can Your Credit Card Company Change Your Interest Rate?”

  1. Ellen Says:

    My credit card company has sent out notices that it is canceling accounts (they are going under), but are notifying us that we are still obligated to pay the monthly maintenance fees on the account. Is this correct? I know that we are still obligated to the debt, but what about the monthly account maintenance fees(which are crap to begin with) on an account that we cant use anymore? What do you think?

  2. Marisol Says:

    Good Morning,

    I came across your site while researching information on the new laws, and I have a couple of questions for you.

    I have an Advanta Business Account in which carried a low interest rate balance till Nov. of 2009. They closed my account without notice back around June of 2009 and the representative told me that the rate will stay the same till I paid it off. I no longer have access to the card but continue to make timely payments. Now, in December, they increased my rate from 1.99 to 8.99. Is this legal, and is there something I can do about this?

    Secondly, I was reading that under the new laws, that payments in excess of the minimum amount due must be applied to the balance with the highest interest rate, except during the last two billing statements before a deferred interest balance is due, where excess payments must be applied to the deferred balance. Can you please explaing the exception part, I really dont understand that.

    Thanks

  3. Jayne Says:

    I have a Citi Bank flex account. I have a balance of abt 4,000.00 I have paid my payments on time from 11,000 tht I started out with. Last month my paymet was late. They are raising my apr from 14.990 to 29.990. I called and they said there is nothing they can do because they no longer offer the flex line of business, and the computer made the change and that is that. Can they double the interest rate??? Thanks Jayne

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