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This article was last updated Dec 12, 2018, but some terms and conditions may have changed or are no longer available. For the most accurate and up to date information please consult the terms and conditions found on the issuer website.
The Federal Reserve is about to raise interest rates for the fourth time in 2018 — and the ninth time since 2015 — and that means that your credit card’s APR is about to go up again, too. We likely know how much it will increase: a quarter of a percentage point. That’s how much the Fed has increased rates the previous eight times, and it’s expected to do the same this time. That means that if your current card’s APR is 17.75 percent, your rate will likely increase to 18 percent.
But how quickly will that happen? How soon will the bank start charging you that higher interest rate?
The short answer: Quickly.
Exactly how quickly depends on the card issuer and its policies. Unfortunately, those policies aren’t always easy to find — and when you do find them, they probably won’t be very easy to understand.
Most likely, you’ll see a rate change within one or two billing cycles, according to our own review of several major credit card issuer policies.
Here’s what you need to know to find just how much more expensive your credit debt will get if the Fed rate hikes continue.
The exception to the rule
A decade ago, credit card issuers could change your card’s interest rate for any number of reasons, and they could do it in a hurry. They could even do it if you were late with a payment on a different account.
It was called universal default, and it was awful. Imagine missing a payment on one credit card and having all your other accounts’ APRs jump. That was a real possibility 10 years ago. The Credit CARD Act of 2009 changed that. In most cases, issuers now must give at least 45 days’ notice before increasing a cardholder’s interest rate.
One of the few exceptions? A Fed rate hike.
The vast majority of U.S. credit cards today are so-called variable-rate credit cards, meaning that their APRs can change. Most of those cards’ APRs are based on the prime rate, which is based on the Federal Reserve’s federal funds rate. That’s the rate that the Fed has been increasing in recent years. When the federal funds rate goes up, the prime rate goes up by the same amount, which drives variable-rate credit cards up by the same amount as well. And your card issuer doesn’t have to give you 45 days’ notice to make it happen.
Want to know how much higher your APR will go? Pick up the phone
No one likes reading through credit card terms and conditions or cardholder agreements. They’re dense. They’re often written in near-incomprehensible legalese. The font size is microscopic. It is just no fun. Unfortunately, however, that’s where a ton of key information is to be found.
There is a shortcut, though. If you’re curious about when your rate will change, call your issuer and ask. You won’t be the first. And if you’re still unclear on the answer that you are given, escalate it. Ask to speak to a manager and don’t end the call until you’re clear on what you’ve heard.
Above all, don’t give up. It may be challenging, but chances are that it will still be easier than deciphering the information that’s available online.
Issuer policies can vary widely, be hard to find
When it comes to raising interest rates, issuer policies are like snowflakes — none is exactly like another.
We sorted through major credit card issuers’ websites to see what the issuers’ policies are for implementing Fed rate hikes. They weren’t always easy to find. For many banks, you could find this information by clicking on “terms and conditions” or another similar link on a credit card’s information page before you applied for the card. For others, including Chase and Citi, it required diving into the full cardholder agreement.
When we did find them, they were often convoluted and hard to understand. For example, here’s what we found from Chase.
“We calculate variable APRs by adding a margin to the highest U.S. Prime Rate published in the Money Rates section of The Wall Street Journal two business days (not weekends or federal holidays) before the closing date shown on your billing statement. The APR may increase or decrease each month if the Prime Rate changes. Any new rate will be applied as of the first day of your billing cycle during which the Prime Rate has changed. If the APR increases, you will pay a higher interest charge and may pay a higher minimum payment.”
Confusing, right? Unfortunately, it’s fairly typical of the information that issuers provide about this.
Basically what that’s saying is that how quickly your rate will change depends on, among other things, when the Fed’s rate hike happens in relation to the closing date on your monthly credit card statement. If the announcement happens well before your closing date, you could end up seeing your APR increase more quickly. If the announcement happens shortly before your closing date, it may take an extra billing cycle to take effect.
The bottom line
So what does this all mean? It means that you can expect to see that new higher APR on your credit card about a month or two after the Fed raises its rates. It also means that if you want a more specific answer than that — like an exact date for how much your rate will increase — you should probably pick up the phone and ask your issuer directly.
Better yet, pay your balance in full so that you don’t have to worry about your interest rates. It’s easier said than done, and it’s not always possible, but with interest rates on the rise — and showing no signs of stopping — it’s really the best move that you can make.
Tip: Check out our list of the cards with the longest 0% intro APR offers.