Answers About Credit Card Interest Rates
Select from the following questions about credit card interest rates and interest rate changes.
- My credit card has a fixed rate. Why is the bank allowed to raise it?
- After I exceeded the limit (or made a late payment) on my credit card, the bank raised my interest rate. Can it do that?
- How often can the bank change the rate on my credit card account?
- The bank is charging a higher interest rate than my State allows. Is this legal?
- I was contacted by phone to apply for a credit card. The solicitor discussed a low interest rate and I agreed. But when I received the loan/credit card, the rate was higher. Can the bank do that?
- The bank raised my interest rate because I made a late payment on an account with another bank. Can it do this?
- Does the bank have to lower my interest rate after I make a series of timely monthly payments?
- I paid my balance in full and closed my account. Can the bank continue to charge interest and fees?
My credit card has a fixed rate. Why is the bank allowed to raise it?
Credit card rates can be fixed or variable. A fixed-rate credit card refers to the fact that the rate on the account is not tied to an index such as the prime rate, that may change periodically. A fixed rate is set for a period. For open-end credit accounts, the term "fixed-rate" does not mean that the rate cannot be changed over the life of the loan.
The bank can generally change the account terms of credit cards or open-end lines of credit, including the interest rate, at any time, unless the open-end line of credit is secured by your home and is therefore subject to special rules limiting permissible changes in terms. The law requires notice to you when certain account terms, such as the interest rate, are changed. If the bank intends to change one of these loan terms, such as the interest rate, it must send the change in terms notice at least 15 days in advance of the change.
The 15-day advance notice requirement does not apply if
- the consumer has agreed to the change, or
- the change is due to delinquency (late payment) or default (such as going over the limit).
In both these instances, the bank must provide some notice prior to the effective date of the change, but there is no 15-day rule.
Be sure to review your account agreement, which is the contract governing your credit card account. It provides information on changes that may occur to your account.
If you received a change in terms notice, you should check to see whether the bank has provided a way to opt out of the change in terms. Some banks permit you to preserve the lower rate on the account by closing the account to future purchases and paying the balance under existing account terms. This may be important to you if you are carrying a balance.
If you can opt out of the change, the notice may list the actions you need to take. Generally, you need to notify the bank at a specific address by a specific date and close the account to future purchases. If you have this option, and wish to take advantage of this option, be sure to cancel any preauthorized charges to the account.
After I exceeded the limit (or made a late payment) on my credit card, the bank raised my interest rate. Can it do that?
Generally, yes, a national bank can change the terms on a credit card account (this also includes personal lines of credit) at its discretion as long as the bank notifies you at least 15 days in advance.
However, the 15-day timing requirement does not apply if
- the consumer has agreed to the change, or
- the change is due to a consumer's delinquency (late payment) or default (going over the limit).
In both these instances, the bank must provide some notice prior to the effective date of the change, but there is no 15-day rule. Be sure to review your Account Agreement, which is the contract governing your credit card account. It provides information on changes that may occur to an account.
How often can the bank change the rate on my credit card account?
Generally, a national bank can change the rate and other terms on a credit card account at its discretion. However, it can do so only if it discloses those changed terms to you at least 15 days in advance.
The 15-day timing requirement does not apply if
- the consumer has agreed to the change, or
- the change is due to a consumer's delinquency (late payment) or default (going over the limit).
In both these instances, the bank must provide some notice prior to the effective date of the change, but there is no 15-day rule. Be sure to review your Account Agreement, which is the contract governing your credit card account. It provides information on changes that may occur to an account.
The bank is charging a higher interest rate than my State allows. Is this legal?
This may be legal because the maximum interest rate is determined by State law—in the State where the national bank has its headquarters.
You should review your Account Agreement, which is the contract governing your account, or any subsequent notifications regarding your account. These will provide information on where your bank is headquartered and any other change that may occur.
I was contacted by phone to apply for a credit card. The solicitor discussed a low interest rate and I agreed. But when I received the loan/credit card, the rate was higher. Can the bank do that?
Yes. The solicitor should have explained the steps the bank will take once you apply. Generally, the bank will review your credit report and the information you provide to determine if you meet the criteria for the offer. After the review is completed, you may not qualify for the terms that you requested—or even for the card itself.
If the bank is a national bank and you want to file a complaint with the OCC, visit the OCC complaint page.
The bank raised my interest rate because I made a late payment on an account with another bank. Can it do this?
Yes, your Account Agreement, or contract, provides the authorization for the bank to review your consumer credit report. Banks conduct these reviews routinely.
The bank is looking for information that indicates the level of risk in continuing to extend unsecured open-end credit. If you miss a payment on another account, your credit score will go down.Generally, a national bank can change the Annual Percentage Rates (APR) and other terms on a credit card account at its discretion. However, it can do so only if it discloses the new terms to you at least 15 days in advance.
The 15-day timing requirement does not apply if
- the consumer has agreed to the change, or
- the change is due to a consumer's delinquency (late payment) or default (going over the limit).
Does the bank have to lower my interest rate after I make a series of timely monthly payments?
Generally, national banks do not have to lower interest rates due to timely payments unless your Account Agreement calls for such an adjustment. As the contract governing your credit card account, the Account Agreement provides information on changes that may occur to the account. If you have a question about this, please contact your bank.
I paid my balance in full and closed my account. Can the bank continue to charge interest and fees?
Banking laws do not identify a specific method for calculating finance charges on a credit card. The law does require that the bank disclose to you how finance charges are computed on your account. Finance charges are not computed in advance on credit cards. Often finance charges are calculated on the average daily balance of the account. The answer to the question depends upon the terms of your agreement with the bank.
For example, you have been carrying a balance for a while. You receive your account statement reflecting a $1,000 balance. The minimum payment is $50 and it is due on the 25th. You decide to pay the balance in full. The payment posts on the 24th. Can the bank assess finance charges on your next statement?
The answer to that question could be yes or no. Whether or not finance charges would be assessed, depends on the terms of your agreement with the bank. Although you paid the account in full, you still carried a balance on the account for most of the month. Some banks may assess a finance charge because there was a balance on the account from the first of the month until the 23rd of the month. Or you may not, if the bank agreed to waive any accruing finance charges if you pay the balance in full.
Finance charges imposed after the balance is paid in full are commonly referred to as "residual interest" or "residual finance charges."
We would recommend that you review your account agreement for information on how finance charges are calculated on your account, or contact your lender. If you feel that the fees or interest were assessed in error, you should file a written billing error dispute. The information on filing a written billing error dispute and the address to which the notice should be sent are listed on your periodic statement.
Phone: 800-613-6743
TDD Number 713-658-0340
TTY: (800) 877-8339 (via a relay service)