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When You Should Opt Out of a Credit Card Interest Rate Increase

Credit card interest rates are rising. Should you continue using your credit card?

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When You Should Opt Out of a Credit Card Interest Rate Increase — Credit card issuers are raising interest rates across the board. Jim Vallee/Shutterstock

5/2/2024Updated: 5/16/2024

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Wouldn’t it be great if low interest rates never changed? Sadly, the saying “All good things must come to an end” applies to credit cards, too. Credit card companies are known for raising interest rates unexpectedly. They need to give you only a 45-day notice before increasing your rate, which can feel sudden.

Have you heard from your credit card company lately? Millions of cardholders have. Believe me, we’re not talking about love letters. Credit card issuers are raising interest rates across the board. On everyone. More than likely, you were given about six weeks to decide whether you want to accept the increased rate. If you opt out, your account will be closed to future purchases while you have the opportunity to pay off the balance at your current rate. Even once you pay it all off, you can’t use the card anymore because it’s closed.

My inbox has been flooded with messages from readers who don’t know how to respond. If they opt out, how will it affect their credit scores? A closed account can show up as a negative entry in one’s credit file. Would it be better to swallow hard on that 28.99 percent interest rate in favor of an unblemished score?

Here’s my answer to these and all other related dilemmas: It depends on whether or not you are carrying a big balance on the account in question.

If You Have a Balance

This is the pivotal issue. If you have a balance on a credit card account that you cannot pay off within the next 30 days, you would be foolish to accept a big interest rate increase. You need to opt out, accept the account closure, and breathe a tiny sigh of relief. Finally, someone is stopping you from going deeper into debt.

Do you know what 27.99 percent or higher looks like in a monthly payment? It’s huge. Here is an example: If you have a $2,500 balance at 9.99 percent interest, about $20 of your monthly payment goes toward interest. Increasing that to 27.99 percent means $58 of your payment goes toward interest. If you are making the minimum payment only, hardly any of your payment will go toward paying down the balance.

Negotiate a Lower Rate

Try to get a lower rate by talking to your card issuer. If your rate went up because you missed payments, you might not get it lowered, even if it happened with another card. But if you’ve been good about paying on time and just made one mistake, you might convince them to lower your rate.

Pay Off the Entire Balance Immediately

Try to pay off a big chunk of what you owe before the rate goes up. If you can shrink your balance before the new rate kicks in, you won’t feel the higher rate as hard. You might need to spend less in other areas to put more money toward your credit card bill.

Your Credit Score

Opting out will trigger a negative report in your credit file. Your current balance will become 100 percent of your available credit. This is bad for your score. So is losing an account that you’ve had for a long time.

But let’s keep things in perspective! To worry about your score when you are about to be eaten alive by credit card debt would be like seeing your house on fire but only being concerned about whether you turned off the iron. In the grand scheme of things, credit card debt is far more dangerous to your future than, say, a 100-point drop in your credit score. Neither are ideal, but they are in no way equal.

If You Do Not Carry a Balance

This changes everything. An interest rate increase will not affect you. In this case, you would benefit by accepting the account at the higher rate. Your credit score will continue to benefit because you will show 100 percent available credit on this account, together with a great history.