If you remember the term “universal default,” you may remember a time when being late on one account could cause the interest rate on a completely different credit card to increase. Credit card rules have changed significantly since then, and consumers now have important protections regarding when card issuers can increase interest rates.
Today, credit card companies generally cannot raise the interest rate on your existing balance simply because your credit profile changed or you had a problem with an unrelated creditor. However, there are circumstances when an interest rate can increase, so it is still important to understand your card agreement, make payments on time, and pay attention to notices from your credit card company.
What Was Universal Default?
Before the Credit CARD Act, some credit card agreements allowed an issuer to raise a cardholder’s interest rate because of problems with an entirely different credit account. For example, a late payment to another creditor could potentially trigger a higher rate on a credit card that was otherwise being paid as agreed. This practice became known as “universal default.”
The Credit CARD Act changed these practices significantly. Credit card issuers are now generally restricted from increasing the interest rate on an existing balance simply because a consumer’s credit risk changed or because of activity on an unrelated account. Certain exceptions still allow rates on existing balances to increase, including some variable-rate changes and when a required minimum payment becomes more than 60 days late.
When Can You Credit Card Interest Rate Increase Today?
Although universal default has been substantially restricted, credit card interest rates can still increase in certain situations.
• A promotional or temporary rate expires.
For example, an introductory APR may increase after the disclosed promotional period ends.
• A variable interest rate changes.
If your APR is tied to an index, such as the U.S. Prime Rate, your rate can change when that index changes.
• Your minimum payment becomes more than 60 days late.
In this situation, a card issuer may be permitted to increase the rate that applies to your existing balance.
• A hardship or reduced-rate arrangement ends or its terms are not followed.
Your rate may change according to the terms of that arrangement.
• The issuer changes the rate on future purchases.
In many circumstances, an issuer can change the rate that applies to new transactions, generally after providing the required advance notice.
One consumer protection worth knowing: if a rate on an existing balance was increased because your minimum payment became more than 60 days late, the issuer must restore the prior rate for qualifying transactions if it receives six consecutive required minimum payments on or before their due dates, beginning with the first payment due after the increase takes effect.
Pay Attention to Credit Card Notices
Don’t ignore notices from your credit card company. Federal rules generally require card issuers to provide advance notice before certain significant changes to account terms, including some interest-rate increases. In many cases, the notice must be provided at least 45 days before the change takes effect.
Read these notices carefully. Look for changes to your APR, fees, minimum-payment requirements, or other account terms. If you don’t understand a change, contact the card issuer and ask how it will affect your existing balance and future purchases.
Sources & Consumer Resources
Consumer Financial Protection Bureau (CFPB)
Learn more about when credit card companies can increase interest rates and the protections that apply to existing balances and new purchases.
CFPB — Credit Card Resources
Find additional information about credit card interest rates, account terms, fees, and consumer rights.
Have Questions About Your Credit?
Understanding credit card terms, interest rates, and how account activity affects your credit can be confusing. Credit Help USA can help you review your credit reports, understand what is being reported, and identify practical next steps based on your individual situation.
