Function

• If your credit card company intends to raise your interest rate, it must notify you 45 days in advance. This advance notice gives you time to cancel your card if you choose. If you do opt to close your credit account in response to the proposed rate increase, however, your credit card issuer can require you to pay off the balance sooner than you otherwise would. For example, if you are making minimum payments on your card and you carry a large balance, it might take you 10 years to pay down the card. If you opt to close your account, your credit card company could require that you pay the balance off in five years, meaning your minimum payment would go up.
  
  

Features

• Your credit card issuer can raise your interest rate without giving you notice if you have a variable rate interest card that is tied to an index, generally the prime rate. If the index goes up, so will the rate on your credit card. You can also experience a rate increase if you signed up for a credit card that had an introductory rate. When that introductory period ends, so does your low rate.
  
  

Effects

• If you are 60 days late making your credit card payments, your credit card issuer can raise your interest rate. In addition, if you are in a negotiated settlement with a credit card company and you do not honor your payment agreement, the company can raise your interest rate.
  
  

Significance

• If you are late with credit card payments and your credit card company raises your rate, the good news is that the higher rate applies only to future purchases. Your lower interest rate still applies to purchases you made before the rate increase. Another benefit for people who had their interest rate raised after being 60 days late on a payment is that the rate must return to the lower rate once you demonstrate six months of consecutive on-time payments, according to Bankrate.com.
  
  

Misconceptions

• The bottom line regarding credit card issuers being able to raise your interest rate is that, yes, they can. Many people are under the impression that the CARD Act stopped the practice of card issuers raising your rate, says Beverly Herzog, of CreditRating.com, on CNN Money. But, as long as the card issuers give you a 45-day notice, they can do what they want on new balances, such as switch you from a fixed-rate card to a variable- rate one.