Why Your Credit Card APR Is Going Up

You never thought this would happen to you, but there it is: an advance warning (as required by law) from your bank that your credit card’s annual percentage rate is going up in 45 days.

You check all your major credit reports because a little birdie once told you that a drop in credit score could lead to an issuer ceremoniously changing the terms and conditions on your credit card account — even if you happen to be paying that particular card off responsibly. (And also, you know, unexpected dips in your credit scores could be a sign of identity theft.)

But, nope, seems all is well and good in the land of your scores. So, what gives?

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Any Number of Things

Well, honestly, it’s hard to say.

“There is no way to provide a definitive answer,” Eric Lindeen, vice president of marketing for ID Analytics in San Diego, California, which offers fraud prevention tools and credit risk management scores to issuers, said in an email. That’s because the increase could be related to a number of things. And it may not even be personal — issuers can be applying a change in terms to individuals, yes, but they can also be rolling them out across their portfolio.

As an example, let’s say you receive notice that your cash advance APR is rising.

“The increased rate may be related to new benefits, since [the issuers] need to balance the cost with revenue,” Lindeen said. “It could also be related to increased risk in their portfolio for cash advances.”

Or, maybe, just maybe, your issuer crunched some numbers and found you, in particular, were more apt to pay for that capability. (Side note: credit card cash advances generally have high APRs associated with them already — which you start accruing instantly — so it’s a good idea to avoid taking one out whenever possible.)

“A rate change could even be driven by statistical modeling that predicts someone in your credit band who needs a cash advance is willing to pay more,” Lindeen said. “Price elasticity models are used in many industries to set pricing on individual products, though the idea is fairly new in banking.”

What You Can Do

Remember, issuers are permitted to change terms and conditions on their credit cardholders, though — thanks to the CARD Act of 2009 — certain ones, including those related to APRs, require at least 45 days notice. If do receive one of these notices in the mail, you can call your issuer and ask what prompted the change. You can also ask them to reconsider. (Just note that this request might generate a hard inquiry on your credit report, which can ding your credit score, should your issuer deem a credit pull is necessary to determine whether it is OK or not to issue the reversal.)

And, if your credit is good, you can consider shopping around for a new credit card with a more favorable APR and/or better benefits. After all, one of the perks of a good credit score is the ability to qualify for the better products on the market. Just be sure to read the fine print of any credit card you are considering carefully to be sure it’s right for you (and your spending habits).

Be sure you can, in fact, qualify for that particular piece of plastic before filling out that its application. Otherwise, you risk generating a hard inquiry on your credit reports, which, again, could ding your credit score. (You can see where your credit stands by pulling your credit reports for free each year at AnnualCreditReport.com and viewing two of your credit scores, updated every 14 days, for free on Credit.com.) And if you ever discover your credit needs some sprucing up, you can do so by paying down high credit card balances, limiting those credit inquiries and disputing any errors on your credit report.

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