Hit with an APR hike? Keep the card or cancel?

The Credit Guy columnist Todd Ossenfort
Todd Ossenfort has been chief operating officer for Pioneer Credit Counseling since 1998. He writes our weekly "The Credit Guy" column, answering reader questions about credit counseling and debt issues.

Ask a question.
Question for the CreditCards.com expert

Dear Credit Guy,
I have a credit card that I've had for many years with a $30,000 limit at a fixed 7.9 percent interest. Currently, I have no balance on this account. I have impeccable credit. Today I received notification that the interest rate on this card will go to a variable rate in July with an interest rate of 17.9 percent. Is this legal?  -- Marlene

Answer for the CreditCards.com expert

Dear Marlene,
As of this week, yes, it is legal to raise interest rates on a credit card account for no reason. Many, if not most, credit card agreements currently have a clause known as "universal default." This clause allows the card issuer to raise the interest rate on the account if you are late with a payment to any creditor -- even if you have never been late with your credit card payment and otherwise met your end of the deal with the issuer.

The good news for consumers is that soon universal default and other unfriendly credit card issuer practices will end. The Credit Card Accountability, Responsibility and Disclosure Act of 2009 was signed into law by President Obama on May 22, 2009. The bad news is that the bulk of the law's provisions will not take effect until the end of February 2010.

So from now until early 2010, consumers will need to keep a close watch on their credit card accounts. Review carefully any correspondence from your credit card issuer(s) and be prepared to make decisions on how or if to act.

I would recommend that you consider the following:

  • Most card issuers will give you the option to opt out of any changes to your cardholder agreement. If you choose to opt out, the account is closed by the issuer and you can then repay any balance under the current terms. Keep in mind that if the account is one of your oldest credit accounts, closing it could negatively affect your credit score. If you are not carrying a balance on the card and the account is a long-standing one, you might consider leaving it open under the new terms and using it occasionally for minor purchases, so you retain access to the credit line. (Update: On Aug. 20, 2009, provisions of the Credit Card Act of 2009 went into effect that mandated consumers be given the right to opt out of increases in interest rates, fees, finance charges and certain other changes in credit card agreements. See story.)
  • Keep a close eye on your credit limits. Creditors are not required to notify you of a change in your credit limit, although many do. If you carry a balance on an account where the credit limit is lowered, it could also lower your credit score due to an increase in your credit-used-to-credit-available ratio, also known as the credit utilization ratio. For accounts that you are currently using to make purchases, double check each statement for any changes to ensure you don't go over the limit and incur costly fees.
  • Be prepared for changes in annual fees. For those cards without an annual fee, you may receive notice that a fee will now be assessed. For those with an annual fee, you may receive notice that the fee has increased.
Also, keep close track of any rewards and points programs. You might consider cashing in now, because the programs may change or be discontinued after the new law takes effect.

Take care of your credit!

See related: How to react to a rate-jack attack, Hit with a credit card interest rate increase: Do you cancel?, Options when facing a credit card interest rate increase, Analyzing the CARD Act, Obama signs credit card reforms into law, Will the new card law hurt more people than it helps?

Meet CreditCards.com's reader Q&A experts

Does a personal finance problem have you worried? Monday through Saturday, CreditCards.com's Q&A experts answer questions from readers. Ask a question, or click on any expert to see their previous answers.

Join the discussion
We encourage an active and insightful conversation among our users. Please help us keep our community civil and respectful. For your safety, do not disclose confidential or personal information such as bank account numbers or social security numbers. Anything you post may be disclosed, published, transmitted or reused.

If you are commenting using a Facebook account, your profile information may be displayed with your comment depending on your privacy settings. By leaving the 'Post to Facebook' box selected, your comment will be published to your Facebook profile in addition to the space below.

The editorial content on CreditCards.com is not sponsored by any bank or credit card issuer. The journalists in the editorial department are separate from the company's business operations. The comments posted below are not provided, reviewed or approved by any company mentioned in our editorial content. Additionally, any companies mentioned in the content do not assume responsibility to ensure that all posts and/or questions are answered.

Weekly newsletter
Get the latest news, advice, articles and tips delivered to your inbox. It's FREE.

Updated: 11-16-2018