Key takeaways
- Your credit card APR can go up if the prime rate changes, you paid your credit card bill late, your intro APR offer ended or your credit score dropped.
- If your APR increases, you can work on paying down your balance or transfer your balance to a card with a low or 0 percent intro APR offer.
- If your credit card debt is really high, you may want to consider debt consolidation efforts or credit counseling.
As a credit card holder, you likely depend on the terms of your card to stay the same. However, there are some times when this doesn’t happen. For many reasons, your credit card issuer may increase your annual percentage rate — or APR. This is one of the terms most likely to change for your credit card — and it can affect your account big time when it does.
Your APR determines how much you shell out for monthly payments and how quickly you can pay down your credit card debt. If your credit card APR has increased, you may not be sure about your options. Here’s what you can do if your issuer has increased your credit card APR:
Why did my credit card APR increase?
The prime rate changed
Most credit card APRs are tied to the prime rate, which is the rate many lenders use for financial products like credit cards, mortgages and auto loans. When the Federal Reserve makes adjustments to the federal funds rate — which is the interest rate banks charge each other for overnight lending — it can also affect variable-rate credit products. In this case, your credit card APR will be affected.
When the federal funds rate increases, it’s known as a rate hike. And in the spring of 2022, the Fed announced its plan to enact a number of rate hikes over the course of the year and beyond. So far, there have been 11 rate hikes since March 2022 — most recently by a quarter of a percentage point on July 26, 2023. On March 20, 2024, the Fed decided to maintain its target range at 5.25 to 5.50 percent for a fifth consecutive time.
But even if the prime rate isn’t currently rising, that doesn’t mean it’s falling. Until we see rates begin to fall — which the Fed indicates might happen later in 2024 — your card issuer might not be making adjustments to your APR, especially when it comes to possibly lowering it.
You paid your credit card bill late
If you don’t pay your credit card bill on time, your card issuer may charge a penalty APR, which could be upward of 29.99 percent. Your credit card typically starts with a regular variable APR, unless you have an introductory APR offer via your card. If you miss a payment, your regular APR or introductory APR would then be replaced by this penalty APR.
However, the penalty APR may not be permanent. If you resume making payments on time, your card issuer should review your account and reinstate your regular APR.
Your introductory APR offer is over
If you received an introductory APR offer as a new cardholder, such as a 0 percent introductory APR offer, the offer may have expired. This promotional offer gives cardholders a lower interest rate for a predetermined period of time. When this promotional rate ends, your regular APR kicks in and is applied to any balance you may be carrying on the card.
Your credit score dropped
When your credit score decreases, it could cause your lender to perceive you as more of a credit risk, which is why it will charge a higher APR for the money you are borrowing. Once your card issuer notices a drop in your score, it has the right to charge a new, higher APR. You do have the option to opt out of the higher rate once you are notified of the upcoming change, but the issuer might close your account as a result.
What can I do if my APR keeps going up?
Now that you understand all the reasons why your APR could increase, it’s time to talk about what you can do when this happens. With some planning and diligence, you can still get ahead of APR increases by following these tips:
Pay down your balance
The surest way to avoid the negative financial effects of a higher APR is to eliminate or decrease your credit card balance altogether. The smaller your balance is, the less you’ll have to pay in interest charges.
You can decrease your balance in many ways. One way to start is by not putting new charges on your card (while looking for aggressive ways to pay the balance down). You can also earn extra money by taking on side hustles or selling things around the house for extra cash. With some creativity and intention, many people have successfully used these methods to pay down their credit card balances. Chances are you can do the same.
Transfer your balance to a lower APR card
If you can’t pay your balance down quickly, it might make sense to transfer your balance to a credit card with a lower APR. This move can help you save hundreds or even thousands of dollars in interest.
Many credit cards come with an introductory APR offer for balance transfers. Depending on the card, you may be eligible for a 0 percent intro APR offer on balance transfers (or some other APR less than the national average).
Keep in mind that balance transfers are not typically free. Many cards charge 3 percent to 5 percent in balance transfer fees. If you want to see how much you could save with a balance transfer, even with balance transfer fees, you should check out our balance transfer calculator.
Consolidate your debt
If your credit card debt is really high, you might be a candidate for low-interest loans that allow you to consolidate credit card debt in larger amounts. Personal loan interest rates are typically much lower than credit card interest rates. However, lenders in this space may have more stringent lending requirements. You’ll have to demonstrate your strength as a borrower. This means you’ll need good or excellent credit, a low debt-to-income ratio and a steady job history.
If, for some reason, a personal loan does not work for you, you may be able to borrow against the equity in your home in the form of a home equity line of credit or a cash-out refinance. Because these are secured loans, interest rates can be much lower than a personal loan or credit card.
Although loans secured by your home’s equity may be somewhat easier to qualify for, you should know that if you default on this type of loan, you could risk losing your property. Granted, a secured loan could be a great option to consolidate any high-interest debt you might have, but it’s not a decision you should take lightly.
Consider credit counseling
If none of the options mentioned above work for you because you simply have too much debt (and an increase in your APR would make the situation worse), you could be a candidate for credit counseling.
Working with a certified credit counselor from a non-profit agency can help you put together a budget and plan of attack to help you pay down high-interest debt as quickly as possible. In some cases, they may suggest a debt management plan (DMP), bankruptcy or other alternatives.
If you go this route, be very diligent about choosing a credit counselor to work with. Be sure to check their references and reviews, as well as whether they have a history of complaints or failing to deliver the services they’ve promised to clients.
Can I decline a higher interest rate?
If you don’t want to accept the new interest rate your issuer offers, you can either decline the rate hike or try to negotiate against the terms. If you just decline the new interest rate offer, the issuer will typically shut down your account or tell you to cancel it since you’re not willing to pay for it anymore.
If you don’t accept the new rate, the issuer will notify you that you have 45 days from the notice date to cancel your account. However, the new interest rate will take effect 14 days from the notice date (which means you can only make purchases at your old rate for up to 14 days after you receive notice).
It’s important to note, however, that the issuer doesn’t have to notify you about your right to cancel your account if it raises rates on new transactions (and not existing balances) or if the interest rate change occurred because you were at least 60 days late with your minimum payment.
Keep in mind:If you cancel your card account, or if the issuer closes it because you don't accept the new rate, the issuer can ask you to pay off your balance within a five-year period and raise your minimum monthly payment required.
How to negotiate with your issuer
If you decide to negotiate with your issuer instead, you might be able to get your rate lowered again in some cases. For example, if your issuer raised your interest rate as a penalty for making a late minimum payment, you can ask to return to the lower rate once you are current with your payments for six consecutive months after the issuer raised the rate. You can also stress to your issuer what sort of financial situation you’re in, and they may allow you to keep a lower rate for a set period of time, especially if you’re a long-standing customer.
Ultimately, it never hurts to ask — so contact your issuer and try to speak with someone in their retention department before you decide to cancel your card.
The bottom line
It can be confusing to see the terms of your credit cards change, especially if the changes are not in your favor. Even a small adjustment in your card’s APR could mean taking more hard-earned money out of your wallet.
In general, the best practice is not to carry a balance on your credit card. But if you happen to have one when your APR increases, you still have to deal with it. The good news is you’ve got many avenues in this situation to still come out ahead, even if paying down your debt right away isn’t an option for you right now. You can transfer your balance to a card with a lower APR, consolidate your debt with a low-interest loan or speak with a licensed credit counselor.
Before doing any of that, however, it’s not a bad idea to simply call your issuer and talk about your options. They may be able to provide a path toward lowering your APR again.
