Thanks to the Credit CARD Act of 2009, you can now opt out when your lender tries to raise your interest rate or change any other material term of the credit card. All you need to do is send a letter.
But what exactly does it mean to opt out?
And what should your opt out letter say?
Read on to find out the answer to those questions and more.
How do opt out letters work?
If you receive notice from your credit card company that they intend to raise your interest rate, you are allowed to opt out of the new terms.
You won’t need to pay any remaining balance in full, although that is best if you’re able. Instead your account will be closed and you’ll still need to make minimum payments.
To opt out of new credit card terms, you need to send a letter in writing to your credit card company stating that you decline the change. Your balance will still be subject to the interest rate you’ve had (i.e., the old interest rate).
One word of caution: Make sure you get proof that you sent the letter and keep a copy for your records.
Knowing When to Opt Out
Do you know the boring mail your credit card company send you? Well, it often contains important information. Like changes to the terms of your card.
It’s very important to realize that the bank can continue sending you these letters changing your existing terms, giving you a mere 15 days advanced notice.
So always remember to read information and letters you receive from your credit card company.
Most people toss these important letters away and find themselves surprised when their statement shows a new interest rate.
That’s why it’s important to always keep on top of your credit card correspondenses. Just because you opt out once doesn’t mean you won’t have to send a new opt out letter if your credit card company sends you another interest rate increase notification.
Repercussions of Opting-Out
Another thing to understand about opting out is this: your account will probably be closed.
This will affect your credit score because it will lower your available credit and harm your credit usage ratio.
If you’re lucky your account won’t be closed. Instead you won’t be able to make future transactions. Always understand the consequences of opting out before you decide to decline rate increases.
Can Interest Rates Be Raised At Any Time?
Thanks to the Credit Card Accountability, Responsibility and Disclosure Act (Credit CARD Act as it’s also known), credit card issuers cannot give you an interest rate increase on any existing balance unless certain circumstances are in place.
Basically, to raise your rate:
- You must have a delinquency over 60 days; or
- The variable rate must increase because of the end of a promotional period; or
- There is a change in the interest rate index.
Credit card companies don’t always have to inform you of interest rate increases on your credit card. An example of this is if you default on your credit card payments or if a promotional period ends.
To make sure you don’t get hit with unexpected rate increases, (1) read all letters and notifications you receive from your card issuer, (2) ask any questions about things you don’t understand on your statement and (3) make all payments on time.
How to Opt Out
If you decide to opt out of an interest rate increase, here’s what you need to do.
You’ll need to write your own opt out letter. A phone opt-out will bit work.
After you write your letter, send it by certifiied mail to the address on the notice. You’ll get a tracking number that you can use to track the package and make sure it gets to the issuer.
Make sure you also make a copy of your letter before you send it.
Here’s a sample opt-out letter you can use.
Credit Card Issuer
City, State and Zip Code
Re: Account Number XXXX-XXXX-XXXX-XXXX
To Whom It May Concern:
On DATE, I received an interest rate increase notice from your company stating that a interest rate increase would take place on the referenced account. This letter serves as notification that I do not want to pay the higher interest rate and have decided to opt-out. I will keep paying my remaining credit card balance at the current rate of INTEREST RATE.
Please confirm in writing to this address that I have bee opted-out of the higher interest rate on my account.
Thank you for your cooperation.
Remember, make sure your letter is sent within 15 days of receiving the interest rate increase notification. Send the letter by certified mail and make copies of anything you send.
Lastly, make sure you follow up with your credit card company to make sure you were, indeed, opted out.
If you do find yourself receiving one of these interest rate increase letters, make sure you understand all consequences of opting out and make a decision that will have the best financial impact for you.
Keep in mind the impact on your credit history and how much a higher interest rate will cost you before making a decision.
Lastly, here are a few tips if you decide you don’t want to opt-out because of ramifications like a closed account.
- Try negotiating the terms and try to get the interest rate lowered. This is especially effective if you have excellent credit history and have kept your account in good standing. You probably won’t be able to get your interest rate lowered through negotiation if you’ve defaulted on the account.
- You can also consider using a balance transfer to transfer any remaining balance to a new credit card account with a lower interest rate.
- Lastly, think about paying the balance in full. This is the best option and will save you the most money because you won’t have to pay interest every month any longer.