Understanding credit card rates
Tips that could help you save time and money.
When it comes to credit card rates, understanding the ins and outs of rate changes can help save you money — and a lot of frustration. While it may seem daunting at first, everything you need to know about your credit card rates can be found using the following.
- Your account agreement: You receive a copy of this in the mail when you get your new card. It details all of your interest rates that apply when the account is opened, and what circumstances might cause them to change. If you don’t know where your agreement is for an existing credit card, contact your credit card provider.
- Your statement: Both online and paper statements list your current rates, as well as any promotional rates, penalty rates, cash advance rates and other information that apply to your account.
- Your mailbox: If there is a change to your rate, you’ll be notified either in a separate letter or in an insert that comes with your statement. Odds are, you get a lot of mail about credit cards, but it’s a good idea to pay attention to communications from your credit card issuer.
- The customer service phone number: If you can’t find an answer anywhere else, call the number on the back of your card, and talk to a customer representative.
What you should know about your credit card rates
Promotional rates. Promotional rates (sometimes called “teaser” rates) are temporary rates that encourage you to use your card. These rates can be offered as a special deal with an existing card, or as an introductory rate when you apply for a new card. They’re a great way to save, but make sure you’ve checked out the details, including:
- The expiration date. If you’re trying to pay off your debt while the rate is low, be sure you know exactly how long you have until the promotional rate expires.
- The rate after the promotional rate ends. This is usually called the standard or contract rate. For more info on the standard rate, see #2 below.
- How payments are allocated. If you have balances with different rates (such as one balance for purchases, but another for cash advances) credit card issuers are required to apply any amount you pay above your minimum payment toward balances with higher rates, but they are permitted to apply your minimum payment to the balance with the lowest rate first. Check your account agreement to see how your credit card issuer allocates minimum payments.
- Standard rates. Standard or contract rates are your regular credit card rates. They’re part of the contract you agree to when you accept a credit card, and they’re listed on your monthly statement. It’s important, however, to know that these rates can still change.
- Variable rates. These rates are tied to an index like the U.S. Prime Rate and can go up or down if the index changes, depending on how often your issuer updates the rates. Check your account agreement to see if your rates may update quarterly or monthly. Issuers generally reserve the right to change rates based on your credit history, market conditions or other reasons. If your rate changes, your issuer is required to notify you first. They’ll explain the reason for the increase or decrease and let you know about your options, including whether you can opt out of the rate change.
- The penalty rate. This is a rate that can be imposed as a result of things like late payments. Check your account agreement to see if your issuer may impose a penalty rate — and if so, what you need to do to avoid it. As you would imagine, the best defense against a penalty rate is to pay your bill on time. If you get hit with an increased rate, though, there’s good news: not all penalty rates last forever. Issuers are required to review your account periodically to determine if the penalty APR can be reduced.
The next time you review your credit card statement, take an extra few minutes to make note of the rates that apply to your account. Knowing this information and understanding the nuances of credit card rates can help you take better control of your finances.
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