Credit card companies will most probably make as many changes they can before August 2010 when the new rules for interest hikes step into effect. So going forward, be sure to carefully read every document that you receive from your credit card company to avoid being caught unaware of changes to your terms.
If your credit card APR does get increased or other terms are changed in ways you don’t like, you do have the option to opt out of the changes within a specified time period. Unfortunately, opting out can be a losing proposition for cardholders. Typically, when you opt out, you will be able to pay off any outstanding credit card balance under the existing terms, but your credit card will be closed and you will no longer be able to use it for new charges.
When a credit card account gets closed, it could hurt your credit score by changing the debt-to-credit limit ratio on your credit report. With a lower credit limit, it may appear that you’re using up more of your available credit, and that lowers the credit score./p p So if your card issuer hikes up your interest rate, should you or shouldn’t you opt out? Here are a few guidelines to determine when to opt out and when not to:
Don’t Opt Out:
If you are able to pay off any outstanding debt before the new rate steps into effect.
If you can make a balance transfer to another card with a lower APR and thereby gain more time to pay down the debt at low interest charges. Check your existing credit cards for balance transfer deals first, and if you can’t find any, apply for a new credit card with a good balance transfer offer. Calculate what the transfer will cost you in balance transfer fees, so you don’t end up paying more in transfer fees than you save.
If you’re planning to apply for a mortgage or car loan within the next 6 to 12 months, avoid opting out. Closing a credit card account could lower your credit score and cost you a higher rate on your mortgage.
Do Opt Out:
If the interest rate increase is substantial and you can’t pay the debt off or transfer it elsewhere.
If you’re not planning to apply for a mortgage or other loan anytime soon.
If you’re having difficulties making the current minimum payment each month. When the interest rate goes up, so will the minimum monthly payments, making it even harder to make the monthly payments, and missing payments will wreck your credit score much more than closing a credit card account. If you carry a balance on other credit cards, it could cause a snowball effect of increasing interest rates on other cards as well.
If you choose to opt out, complete the opt-out process exactly as instructed and by the deadline required. Some credit card companies make it easy to opt out by providing a phone number or making it very clear how to opt out in writing. Other card issuers put stumbling blocks in the way, like requiring cardholders to send a separate letter that must be received (not just mailed) by a certain deadline. If you choose to opt out by phone, follow up with a letter with all pertinent details, such as your name, address, account number, and phone number. State clearly that you “reject the new terms.” Include a photocopy of the notice announcing the new terms.
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