With changes in credit card law and regulations coming in 2010, many card issuers are jumping to get higher interest rates in place before they lose the option to do so. If you’ve received a letter notifying you of a change in terms, you may be unsure of the best response. This can be even more true if you are a careful customer who uses your credit cards responsibly and pays on time. The reason given for these interest rate changes is typically the economy; however, in reality companies are working to get these changes in place while they are still able to do so.
You will probably be offered the option to “opt out” of the interest rate change. In this case, you must stop using the card before a designated date and notify the company of your refusal of the new terms. You can still repay the current balance over time, but will no longer have any available line of credit. Once the card is repaid, the account will be closed. This can, however, damage your overall credit score.
Some customers may be able to work out a personalized repayment plan with the credit card company, particularly if you have the cash on hand to pay off the card in full quickly. If you can pay off your balance in full, some credit card companies will allow you to retain your original interest rate and avoid the changes. This option should not damage your credit score; however, it does require that you be able to pay your card in full.
If you have excellent credit, consider using a balance transfer to another card, either one you already have or a new card with a low introductory rate. This typically includes a fee of around 3% to 5% of the balance and in today’s economy, many customers may not have this option available.
The credit card law changes in 2010 will disallow these kinds of rate increases and limit interest rate increases to new charges not previous balances. Unfortunately, these regulations do not help customers today. There is some good news on the horizon for customers in this situation found in the new laws. Banks are required to review interest rate increases and changes regularly, and that requirement applies to interest changes from January 1, 2009 onward. It is likely that many companies will have to roll back these changes when the new laws take effect.