When can a bank change the interest rate on a credit card?

Credit cards can often change their interest rates for a number of different reasons, which may or may not be in the card holder’s control.

The first reason for changing an interest rate is if the credit card was offered as an introductory offer.  This is when there is a very good rate of interest, sometimes as low as 0%, offered for a set period.  This period has to be advertised reasonably prominently and most customers are aware that the offer will run out.  In many cases the balance can be transferred to another card in advance of the change, which can mean that the money borrowed can have an effective interest rate of zero over a number of years.

Credit card interest rates may vary depending on how it was built up.  This means that a credit card that advertises itself as having a low interest rate on balance transfers will have a higher interest rate on all debts that come about due to spending.  Credit card providers also often reset repayments first against the lower interest rate, which can further increase the total rate of the interest.

There are also penalty rates, which are rates that are charged if the credit card user somehow breaches their terms of use. This can include going over the credit limit or not making the minimum payments.  This can be considerably higher than the normal standard interest rate and can be a big additional problem for credit card users, as they usually start to be charged this amount when they are already starting to get into trouble.

There are also variable rates which can be changed through no fault of the card holder.  These variable rates may be tied to an interest rate, such as that of the Reserve Bank of Australia or the London Interbank Offer Rate (LIBOR) or they may simply change due to the decision of the issuing bank.  Most credit cards are on variable rather than fixed rates.  It is often a good idea for a credit card user to frequently check the interest rates that they are charged.

One warning sign that rates may start to go up is when a credit card stops being actively marketed, as there is then less pressure to maintain the interest rate at a competitive level.  All changes of interest rate should be notified to a card user through a personally addressed letter.