There are 4 instances in which a bank is allowed to increase the credit card rate.
The Truth in Lending Act is a federal law that dictates when a bank is allowed to increase the credit card rate. Starting from February 22, 2010 new credit card laws have been brought into effect which have changed the way bank or creditor is allowed to increase or decrease the credit card interest rate.
When can banks increase the credit card Interest Rate
Your credit card interest rate can increase when you have defaulted on the credit card terms by being late, by going over the credit limit or by bouncing the check for your payment. Before the new law that was passed on February 22, 2010 a credit card provided could increase your interest rate even if you had a defaulted on another credit card with another creditor according to a practice that was known as Universal Default.
The other three circumstances under which a bank is allowed to increase your credit rate are as follows:
Banks can increase your credit card interest rate at any point if you have a variable rate credit card. A variable interest credit card is tied to the index rate of the economy. Whenever this index rate goes up and down so does your overall credit card interest.
Your credit card interest can change if any promotional rate expires. The new laws that have gone into effect from February 22, 2010 require promotional rates to last at least six months. After the duration further promotional rate is over the new interest rate can come into effect which can be the prevailing rate of interest or the one that you agreed on during the time of signing up for the credit card.
The creditor is allowed to increase your interest rate on the credit card when you have just completed a debt management plan or a hardship arrangement or have defaulted on an existing arrangement.