3 Reasons You Should Not Immediately Opt Out Of a Increase in Interest Rate On Your Credit Card

It is a logical reaction to want to opt out of increase in the credit car interest rate. A creditor has to notify you 45 days in advance whether he is increasing the interest rate on your credit card. The first reaction yes to want to pay back the balance at the original lower rate of interest and opt out of the higher interest rate. While it is true that you will be able to pay back your balance with paying a small amount of money is interest what happens most commonly is that the creditor closes down cancels the credit card account of consumers to opt out of a higher interest rate. Some creditors will close it immediately .others will wait until you have paid off existing balance. Here are a few reasons why you may want to endorse a higher interest rate rather than have your credit card being cancelled.

If you pay the credit card balance every month. For people who pay down the balance on their credit card every month in full, the increase in the interest rate is not going to make much difference. Increase in the interest rate only affects those people who revolve their balance from one month to another. You may prefer to retain the credit card even after the increase in the interest rate since you are not going to be affected by it and a closed credit card usually hurt your edit score by increasing your credit utilisation ratio.

You do not have any other credit cards or loans. In order to build a good credit history and a good credit rating it is important to be using some form of credit and having positive data reported to the credit bureaus every month. If the credit card you have is the only credit card you have, closing its down will decrease the credit age of your credit file and also hurt your credit score because no information will be reported to the credit bureaus about your credit transactions. Payment history constitutes repair percent of the credit score model and it takes a stable credit account with timely payments over a long duration of time to build a healthy credit score.

The same principle holds true if your other credit cards are maxed out or are running high balances. Getting an extra credit card closed down will result in a sudden increase of your credit utilisation. Since the available credit will go down dramatically after the closing down of one credit card your credit utilisation may increase which will hurt your credit score. If you indeed decide to opt out of the higher interest rate and have the credit card closed down you will have to pay down the balance on the existing credit card as well as other credit cards so that your credit utilisation can stay below the 30% ideal Mark.

It is a logical reaction to way to straighten or angry at the increase in the interest rate specially if you have entertained regular and positive payment history with the creditor. However, the fact remains that a closed credit card account can hurt your credit score which may then have a ripple effect causing your other interest rates to go up as well. So think carefully before considering opting out of a higher interest rate. It may be well worth the effort to a the current balance at the higher interest rate and then make the point to pay down the balance in full every month in the future so that you will not be affected much by the increased interest rate on your credit card.