In addition to federal interest rate increases, there are other reasons why a credit card company may increase interest rates. For example, when there is an apparent high risk of default by consumers with high balances and who are making only minimum; or late, payments. Your credit card issuer can increase interest rates usually at any time for any reason if your card agreement allows for universal default.

Your rights: Current FDIC Consumer Protection laws require banks to give 15 days notice before a non-penalty change; such as an interest rate increase, to the credit card agreement can go into effect. This means your credit card issuer must let you know your interest rate will be increasing at least 15 days before the new, higher rate actually begins. During the 15 day window, you have the opportunity to optout of the increase if you desire. If you choose to optout; however, the creditor will likely close your account and you'll still have to repay the current balance but at the lower, previous interest rate.

Yet there are still occasions when a credit card company can make changes without having to notify you in advance. For example, a credit card company can increase your interest rate without advance notice if the rate increase is due to a delinquency or default on your part. These types of penalty increases should be outlined in your credit card agreement. An example violation could be for making a late payment, even on another credit card.

Upcoming change: Starting July 1, 2010, new credit card rules will require credit card issuers and lenders to give 45 day advance notices before increasing interest rates, even for penalty rate increases.

Credit card issuers know that many cardholders don't thoroughly read billing statements, so they often use this method to notify you of interest rate increases. If you have a habit of throwing away those inserts without reading them, you could miss out on the opportunity to optout of the interest rate increase.

Browse and apply for a new, low interest rate credit card.


Your Options

If your credit card company raises your interest rate, you can either accept the increase, optout, or negotiate for a lower interest rate.

Opting out of a higher interest rate could give you a bad credit score, causing other interest rates to go up as well. Before you optout, consider the pros and cons of your options. It may be smarter to simply accept and pay the higher interest rate.

Before we give you tips on how to optout, first review some reasons why you may not want to optout:

• #1, although you'll be allowed to repay the balance under the original, lower interest rate, the credit card company may likely close your account and not allow new, additional charges.
• #2, having your credit card closed might lower your credit score, because the closure will reduce your Available Credit Limit, a vital part of your credit score.
• #3 if the credit card account is your oldest, the closure will lower your age of credit; which is 15% of your credit score, and thus lower your credit score.
• #4 if the credit card account is your only line of credit, again the closure will decrease your age of credit plus you won't have anything being reported to credit bureaus. Payment history is 35% of your credit history and you need years of timely payments to get the best credit score.
• #5 if your other credit cards are maxed out, so will be your total credit utilization (amount of credit allowed and used up), which also affects your credit score. Level of debt counts for 30% of your credit score and is measured by your credit utilization (balances divided by credit limits). The higher your utilization the lower your score. If your credit card gets closed while your other credit cards are maxed out, your credit utilization could go up causing your credit score to lower. If you’re going to optout, pay off the other credit card balances to protect your credit score.

How to Opt-Out of an Interest Rate Increase

You only have a short period of time (15 days) to optout of the interest rate increase, so act quickly to make sure the optout is effective.

An optout by phone will not be effective, because you must optout in writing. The creditor won't send a form either, so you have to type up your own letter to notify the creditor you do not accept the new interest rate terms.

Here's a sample optout letter:

Letter Tips:

• Send the optout letter via certified mail with return receipt requested. Ideally, you should obtain a certified mailing label from the post office prior to printing your letter. That way you can include the 20-digit trakcing number on the certified mailing receipt number in your letter for extra proof.
• You can track the letter at USPS.com using the 20-digit tracking number on the certified mailing receipt. The return receipt will arrive in the mail a few days after the mail has actually been received.
• Follow up with the credit card issuer to be sure your optout was processed and to find out if and when your account will be closed.

How to Negotiate A Lower Credit Card Interest Rate

Your other; and likely best, option is to negotiate lower interest rates with creditors. It's actually quite easy, especially if you stay calm. Simply call your credit card company, give your name and account number, and explain how you'd like to continue being a customer but you need a lower interest rate. If that doesn't help and you have other cards; or offers, with lower interest rates, let your issuer know that information. Don't try to bluff the creditor by saying you have a lower rate credit card offer when you really don't. You might get called on your bluff.

If you've been a long term customer, also let them know that as well as your history of timely payments.