Facts

• Under the CARD Act, a credit card company must provide 45 days' notice before changing the terms of your original agreement, giving you ample time after receiving notice of the impending rate increase to decide whether to opt out. If you opt out, the credit card company will likely close your account. You may then pay off the amount you owe under your original interest rate.
  
  

Features

• Opting out of an interest rate increase could result in higher monthly payments. The Federal Reserve Board states that credit card companies can demand that consumers who opt out of rate increases and lose their credit card accounts repay their card balance within five years. Credit card issuers also have the right to alter how they calculate minimum payments--possibly leaving you with a much higher minimum payment.
  
  

Effects

• Opting out of a rate increase and closing your credit card account can adversely affect your credit rating. According to the Fair Isaac Corporation, the company responsible for calculating consumer FICO scores, 15 percent of your credit score depends on how long you've had credit. Canceling an old credit card may shorten your credit history and lower your score. If you carry a balance, canceling a credit card account negatively impacts your debt utilization ratio--which can also damage your credit rating.
  
  

Prevention/Solution

• If you can't afford the new interest rate but fear the credit damage and heightened monthly payments of opting out, Bankrate.com recommends transferring your balance. Through a balance transfer, another credit card company pays off your current balance. You then pay off that balance to the new company. Your old card remains open with a zero balance. As long as you make no new purchases on your old card, you need not worry about the change in your interest rate. Keep in mind that balance transfers often come with fees, and the new credit card's interest rate must be low enough to make the balance transfer worthwhile.
  
  

Considerations

• For individuals with no plans to finance any large purchases in the near future, opting out of a rate increase and paying the remaining balance over time may be wise. If you plan to finance a new car or apply for a mortgage, however, you may want to rethink your decision to opt out. The negative impact that opting out can have on your credit rating may result in you paying a higher interest rate on any new loan.