In most cases, if you do not follow the terms and conditions of your credit card, your APR could change from the introductory APR or the regular APR to what is called the Default APR .
The default APR is usually a penalty APR that is above 20%. In almost every case, if you miss your credit-card payment, the default APR will be triggered.
For example, the reasons your APR on a Chase® credit card could change to a default APR is as follows (as of May 2, 2008): “APRs may increase if you default on this account for any of the following reasons: We do not receive at least the minimum payment due by the date and time due; you exceed your credit line, if applicable; or you make a payment to us that is not honored by your bank. Your APRs may increase as of the first day of the billing cycle in which the default occurs.”
Do note that the Default APR trigger might differ, depending upon which credit card you have. It is important to make sure you are aware of what will activate the Default APR on each of your credit cards. Call the customer-service telephone number for each of your cards and speak with the agents to make sure you understand the Default APR trigger for each of your credit cards. You can also read the terms and conditions sheet that came when you applied for your credit card, although sometimes these terms and conditions will change, so you will want to make sure you’ve got the most recent information.
It is very important to cover yourself against the possibility of going into a Default APR, especially if you carry a large balance on your credit card. Let’s say you have a credit card with a regular APR of 10% and a balance of $5,000. If you miss a payment and go into a 20% default APR, that will cost you an additional $500 each year!
Our Recommendation:
Consumers can protect themselves against missing payments by calling their credit-card company and signing up to have their minimum payment automatically deducted from a checking account each month. This arrangement is made directly with your credit-card company.
