Increasing the interest on a credit card – your rights

There are two situations a credit card can increase your interest rate:

1. if the Bank of England base rate goes up and your credit card tracks that rate; or
2. when your credit card decides to increase your interest rate.

It is important you know which is happening when your interest rate rises, as in the second case you have the right to reject this change.

This also applies to store cards and to accounts such as Paypal, which you may not think of as a credit card.

Base rate changes

Many credit cards now track the Bank of England base rate, but not all do. Your credit card T&Cs will say if your card does.

Here the standard interest rate on the card will increase automatically as the base rate changes. The new rate will be shown on your next credit card statement.

These changes only apply to standard interest rates. They won’t affect you while you are on a 0% balance transfer or any other promotional rate. They also won’t apply if you are on an installment plan to help you repay the card balance more quickly.

Here is a question from a reader:

My credit card statement says my interest rate is going up another half percent.
It’s the card with the highest balance and I already pay an extortionate amount of interest when I pay minimum repayments (£150 per month).
Is there anything I can do to stop this? 

That sounds like her card is tracking the base rate – she has had several small increases and they show on her credit card statements.

The Bank of England base rate was increased several times by between 0.25% and 0.75% last year, and was increased again in January 2023 by 0.5%. Each of these changes is small, but they are starting to add up to a significant amount.

You don’t have a right to reject an increase caused by a change in the base rate.

But see below for what your options are if you are finding it difficult to pay the card each month.

Other, usually larger, interest rate increases

Credit cards can also change your interest rate for other reasons – this applies whether your card tracks the base rate or not.

These changes tend to be larger than the small base rate changes, but happen less often.

NB Be careful if your interest rate looks very low – less than 3%. Here you may be looking at a monthly interest rate, not an annual one. So if your rate is going up from “1.9” to “2.7” that may sound tiny – but it is actually an increase from 23% to 33%. There is a converter here you can use.

Here are a couple of examples:

• I got a notice of credit card interest increase from 29% to 41%. I was given 60 days notice by 118 Money. Is that legal, such a huge increase? 
• We are writing to let you know that the annual interest rate on your Zable Card is increasing from 38.9% to 48.9% (an increase of 10%).

Unfortunately these huge jumps are legal.

But as it is a big change to your credit card, you do have the right to reject this. The regulator sets this out in CONC 6.7.13.

The email or letter you get says this, but many people don’t notice that. Or they misunderstand it as the card company hasn’t said clearly how it works.

The letter often says something like “you can reject the increase and close the card“. And you may think you would have to repay the whole balance immediately, which you can’t afford to do.

But if you reject the increase and the account is closed, you can just carry on repaying the card as before at the old interest rate. You just can’t spend any more on the credit card.

If you are trying to clear the card, then it is usually sensible to go for this option and reject the increase. Clearing the card when the interest rate is higher will take much longer and be more expensive.

If you do this, it won’t show as a payment arrangement or a default on your credit score. You are just choosing to stay on the old rate and are repaying the card as the T&Cs say.

Difficulty making the card repayments?

If your credit card repayments have been causing you problems, this gets worse when the interest rate goes up as this makes the minimum payment a bit larger.

So this is a good time to think if you need some extra help:

• if this card is your only problem debt, you could talk to the lender about a payment arrangement, where interest is frozen;
• with other problems as well, or if you don’t feel up to talking to creditors about your difficulties, talk to StepChange about a Debt Management Plan.

Payment arrangements and DMPs can both harm your credit score, but they are practical ways of clearing too much debt with the interest being frozen. And then you don’t have to worry about any more interest rate increases!

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