What to do after a rate increase

In the past year, credit card issuers have increased rates on many consumers. 11.99%-13.90% is now the range for low advertised rates for many cards. The increase comes at a time when many households are struggling to make their minimum payment, and a rate increase adds to the financial problems.

Here are some tips on what to do if your credit card rate
increases:

* Pay attention to your mail and notices from your credit card company. The CARD Act requires that issuers give you a 45-day written notice before the rate increase so consumers have time to make adjustments or find a new card. These notices are often sent in a plain, white envelope and are easy to miss.

*Decline the rate increase. Close the card and pay it off at the old rate.The CARD Act also requires consumers to have the choice to “opt out” of rate increase. This allows you to close your account and pay it off at the old rate or keep the card and pay at the increased rate.

If you choose to close the card, you have a short deadline to mail an “opt-out” letter to your issuer with your request to close the card (you must write a letter, they do not send you a form). If they do not receive your “opt-out letter”, they will automatically increase your rate.

* If your rate increases, call and ask your issuer for a lower rate. If you have a good credit score and good payment history, there is a small chance that they will restore it to the original rate. If they don’t comply, comparison shop to find a lower rate card.

* Check your credit report. It is possible that your rate increased because of a change in your credit report, or your credit score dropped. Look for errors that should be corrected, or changes that you can make to improve your
score.

* Shop around for a card with a lower rate. While issuers seem to follow each other with rate and fee increases, this is still a competitive industry. If you have a good credit record and score, you should switch to a card with a lower
rate.

Credit applications show up on your credit report, so choose one or two cards. If you don’t like the offer, you can cancel the card.

* If you are in a situation where you are stuck with the rate and the card but you are not able to pay the new amount, contact your issuer to work out a payment plan. Default rates for some issuers are above 10% and creating a major loss for issuers. It is in their best interest to keep you paying something toward your debt, instead of defaulting on the loan.

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