It amazes me that a lot of people haven't heard of the CARD Act yet. Perhaps I'm just biased because I spend a lot of time reading financial sites, but it seems like the CARD Act is one of those laws that's received an extensive amount of media hype since it was passed last year. How could anyone completely miss it?
I do happen to come across a friend or relative who knows what the CARD Act is from time to time, and when I do I like to ask them what change they think will matter the most to their wallets. Surprisingly, the general response is the same in almost every case—"no more interest rate increases on existing balances."
Well, that would be a very nice change indeed, but it's certainly not part of the CARD Act. The truth is credit issuers can still raise interest rates on existing balances in a variety of different situations without giving any advance notice. Four, to be exact.
To make sure you don't get surprised by a hefty hike in your credit cards' interest rates, here are the four situations you should keep in mind:
1. You're Over 60 Days Late
Forget to pay your bill for 60 days, and your credit issuer will likely jack your interest rate to a default level somewhere around 30 percent. One consumer-friendly change is you now have a chance to get back to your previous rate by paying on time for six months.
2. You Have a Variable Interest Rate
Many credit cards used to have fixed rates. In response to the CARD Act, credit issuers began sending notices to cardholders that they were switching fixed-rate cards to variable rates. So, if you have a variable rate credit card now, expect its interest rate to rise with whatever index it's tied to.
3. Your Teaser Rate Just Expired
Nothing has changed with this one. When your 6 or 12-month 0% interest credit card promotion is up, your interest rate will automatically increase without prior notification.
4. You've Fallen Behind on a Workout Agreement
Don't expect your credit issuer to play nice after you've entered into a workout agreement and then failed to make the agreed upon payments. Most will immediately whack you with more fees and a higher interest rate until you're able to get current once again.
I'm curious, has anyone experienced one of these interest rate hikes since the new credit card rules took effect?
