Avoid higher credit card interest rates

Duck the default rate! APR increases are not inevitable.

By Jeremy M. Simon

Perhaps the following situation sounds familiar: You are a responsible credit card user who makes sure to always pay more than your minimum balance on time each month.  Even so, the bank hikes the interest rate on your credit card from (what appears to be) out of the blue.

Why would your credit card issuer decide to do that?  There are a number of possible reasons for default pricing -- all of which should be outlined in the card member agreement you received with your credit card.

Your credit card interest rate jumps when you do something that sends up a red flag suggesting you are a credit risk to the issuing bank.  These activities may include making a late payment or exceeding your credit limit, but could also include simply maintaining a high credit utilization ratio.

Even if you make payments on time and do not exceed your credit limit, by using a significant portion of your credit line, you may appear to be a risky borrower. From the issuer's point of view, should some unforeseen event take place while you have a large credit card balance, it could be difficult for you to pay it back.

To avoid having the bank suddenly raise your interest rate, a good strategy is to pay off as much of your credit card balance as possible each month.  Of course, the best course of action is to always pay down the balance in full every period.

What to do if hit with rate increase
If your credit card rate does spike, call the card issuer using the customer service number provided on statements and the reverse side of your plastic.  When you reach customer service, request that they lower the interest rate on your credit card back to its original level.

If you don't get anywhere with the first person you speak to, ask to talk to a supervisor.  They usually have more power when it comes to lowering customers' interest rates.  You can also threaten to cancel your credit card account, which can get you transferred to a retention specialist, who may reduce your interest rate to prevent losing a customer.  Customers who revolve \balances on their cards are especially valuable, since they earn issuers thousands of dollars every year.

Separately, you may choose to shift your high APR debt to one or more lower interest balance transfer credit cards.  Balance transfer credit cards may charge as little as 0 percent interest for six months or longger.  However, be careful when using your balance transfer credit card for new purchases, since any payments you make will first go toward paying off the low APR transferred balance before any being applied to new charges.

Published: May 1, 2007

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