Understanding the Mathematics of Personal Finance

CHANGING INTEREST RATES

If a credit card company decides that your risk as a debtor has changed, the credit card company might increase your interest rates immediately. This decision can be triggered by many factors in your financial life and need not be due to any history of late or insufficient payments to this credit card company.

One situation, so egregious that lawmakers have addressed it, is that some credit card agreements allow the credit card companies to change interest rates not only on new purchases and cash advances but also on existing balances. This is analogous to, for example, the bank that gave you an auto loan calling you sometime and telling you to “throw away your payment schedule, we’ve raised your interest rate and we’ll be sending you a new payment schedule with higher payments.”

As I keep repeating, I’m in no position to give legal advice—not only because I’m not a lawyer but also because some banking laws are federal laws, some are state laws that vary from state to state, and all legislation is subject to change. Read your credit agreement when you get a new card, and read the occasional “your agreement has changed” notices. If you agreed to the contract (and using the card is considered accepting the agreement), you don’t have much of a leg to stand on when you realize that you don’t like it. You can cancel the card, but this won’t affect balances and interest rates already in place.