At a time when credit scores mean so much, especially to prospective homebuyers, a credit card interest rate that climbs is one of the last things military cardholders need.
Make sure you know what causes credit card rates to increase.
Before you agree to a credit card contract, dig through it and make sure you’re clear on the reasons why your interest rate could spike. Your credit card issuer cannot arbitrarily raise your interest rate.
The potential reasons must be in the contract. Look for the following:
Universal default
This is a somewhat more arbitrary term lenders can use to increase your interest rate. Universal default means you paid another lender late and the bank claims the right to boost your rate as a consequence.
Expiring introductory rates
Credit card companies often start new accounts with an introductory annual percentage rate (APR). Within six or 12 months, that APR almost always expires and increases. The details regarding that boost will be in the contract. Look for it before you sign to determine if it’s a fair and manageable increase.
Over-limit transactions
Any transaction that pushes your balance over your credit limit is an over-limit transaction. Your credit card issuer can stipulate in the contract that over-limit transactions cause your interest rate to rise. Either don’t bother with a contract that has this term or avoid spending above your limit.
Credit history
Contracts can give your card issuer the right to increase your rate if it sees unfavorable activity when it pulls your credit history. Having too many credit cards or paying other creditors too late can be means for a rate hike.
Market changes
Phrases such as “market conditions” and “market climate” enables the card issuer to raise your interest rate if the lending market nosedives. Another scary phrase that should raise a red flag is “any time, for any reason.” Whenever it wants, the credit card issuer can play with your rate.
Credit card agreements aren’t short. Military members need to be patient and take time to read the fine print of every contract. In the long run, reading every detail pays off by avoiding a financial nightmare: increasing credit card interest rates.
Photo thanks to Images_of_Money under a creative commons license from Flickr.