By LaToya Irby, About.com Guide
Credit card companies charge you interest on the balance of your card that has not been paid within the billing period. The rates ust be disclosed to you before you use the card. When we apply for a credity card, we see two types of interest rates: The fixed and the variable interest rate. What's the difference between these two?
A fixed interest rate doesn't stay fixed. Credit card companies have the right to change these rates under certain circumstances. The regulation right now requires credit card companies to give the cardholders an notice of 45 days in advance befoire changing the fixed interest rates. cardholders shoukd also be given the right to opt out of the card if they don't want their interest rates to increase and shoulkd be given the chance to pay their balance at the old interest rate.
Here are the circumstance where the credit card company can change your fixed interest rate:
•If you are late on your credit card payment for more than 60 days
•You had a promotional rate that expired
•Your debt management program has been completed
•You have a variable interest rate on your credit card and the interest rate has changed
Note: The fixed interest rate cannot change within the firt year of opening the account unless it's covered by any of the above circumstance.
A Variable interest rate, on the other hand, is a rate that is tied to another rate, one that is usually related to the economy. the variable interest rate is a percentage point above the index rate. If your variable interest rate is prime + 13.79% and the prime is at 3.35%, then your interest rate is at 3.35% + 13.79%, making your interest rate 17.04%.
So the variable interest rate changes with the market as the rate goes up and down so your interest rate can change and you'll only notice this if you pay attention to your billing statement.
You can avoid these two interest rates altogether if you pay your balance in full every month.
VIA credit.about.com
Keyword: Credit Card
