Ask a CFP® Professional
Bryan D Beatty, CFP®
Egan, Berger & Weiner, LLC
Vienna, VA

Question:

My credit card lender has recently increased my interest rate dramatically after I was a few days late on one payment. 

I will have paid off the entire balance on my card in the next few months, but my rate is still extremely high.

Is it possible to lower my rate, now that I have almost paid off the balance on the card?

- DC Saver E.W.


Answer:

One of the biggest surprises in our financial lives comes from a sudden rate change from a credit card company. Unfortunately, the fine print isn’t the easiest read and is second in complexity perhaps only to mutual fund prospectuses.

One of the first things you want to do is pay that card off as quickly as possible. I am glad to hear that you have nearly done this already. Once you have paid the card company back you will have a much greater chance to negotiate the rate back down. It may not go back to the original rate, at least not for a while, but don’t cancel the card, especially if it is one of your oldest credit histories. You need long evidence of a credit history to keep your score high and your cost to borrow low.  See www.annualcreditreport.com for a free copy of your credit report (without the score), which will show you all of the accounts in your name.

If this is the first time that something like this happens to a cardholder with a long history, say 5 or more years, then a call and a short, polite but firm request the very month you catch the spike in rates may work. If this is something that has happened on multiple occasions in one year, however, then this tact may not prove beneficial.

If you let the company know that you may not use this card anymore because of the prohibitive rate, and that you would have to think about using your other credit options (provided there are other credit cards that you can use), you may be able to negotiate the rate back down.

The fact is that the current environment of credit default risk has put banks and credit card companies in the very position of having to access increased risk of default. Late payment is an indicator of trouble on the horizon. Sometimes a missed payment is an honest mistake, but it is very hard to tell those situations apart without borrower and creditor interaction.

The last suggestion I would make is that you pay bills on line or with automated pay. I know that many people don’t like that idea. However, identity and fraud experts (i.e. Lifelock.com or identityguard.com) suggest that you are safer by paying electronically then by writing checks. Today in the 21st century check fraud is still the most likely way for an identity to be stolen.

-Bryan Beatty, CFP®