This is a question we got recently from a reader:

Hi,

I just received notice from my credit card (Citi Cards) company that they are increasing my APR rate from 5.9% to 14.99%. If I do not accept this new term then they will close my credit card account and report to the credit reporting agencies as “customer closed” account. How would this affect my credit rating? Is it better to accept their new term and not have my account closed? I have a balance that I’m trying to pay off and I’m trying to build up my credit score. Should I transfer my balance to a new credit card account (not with Citi)?

Thank you..

christy lee

Answer – How your credit score will be affected depends on a number of factors, mainly:

Generally speaking, you should try to keep cards that you have had for many years even if you do not use them simply because the length of history is an important factor in your credit score. How large your credit lines is also important. The debt utilization ratio is the amount of balance you have versus the amount of credit that has been granted to you. The other things is that an account that is closed by customer is much preferable to an account being closed by the credit card company.

But at the end of the day, I think the decision boils down to how much hardship will that extra payment affect you. If you are on the edge and you simply cannot afford the extra payment, then you might have to just bite the bullet, refuse the new term and just pay off the existing balance based on the old rates. You will not be allowed to charge any new items on the card.

Alternatively, you can accept the new terms, but get a % APR balance transfer credit card and transfer the balance over. You will probably need a decent credit (above 700 score) to pull this off in today’s environment. Alternatively, you can simply get another card and just transfer the balance over (presumably at a lower rate).

So to sum up, what you do really depends on a number of factors. Hope this has helped to clarify a few things.

This entry was posted on Friday, July 24th, 2009 at 07:36 and is filed under Credit Cards FAQ. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.