how upfront pricing works
credit card issuers set interest rates fees and credit limits for each cardholder through a largely automated process called underwriting underwriting attempts to assess how much risk a card applicant poses based on their credit score their debt to income ratio and other factors a typical credit card might come with a range of possible interest rates with riskier customers assigned rates toward the high end and less risky ones paying lower rates some applicants may be rejected altogether for a particular card based on the underwriting process this is often referred to as a risk based pricing model and it is used not only with credit cards but with other types of lending such as car loans and home mortgages under the equal credit opportunity act card issuers are prohibited from considering an applicant s age gender identity sexual orientation marital status race color religion or national origin in deciding whether to grant them credit and in setting the terms for it 1upfront pricing and consumer protectionssince the passage of the credit card accountability responsibility and disclosure act of 2009 also known as the card act credit card issuers in the u s have had to follow a more uniform set of rules the act s stated goal was to establish fair and transparent practices related to the extension of credit and it laid out a number of provisions covering both the underwriting process and pricing 2for example credit card issuers once had a relatively free hand in raising the interest rates they d initially established when a cardholder opened their account often resorting to such tactics as hair trigger repricing that allowed them to impose a higher penalty apr on the account balance if the cardholder was even a day late with their monthly payment 3 in fact cardholders could even be subject to a penalty interest rate if they were late on an entirely different credit account a situation known as universal default 4the card act largely reined that in prior to enactment of the card act the consumer financial protection bureau has noted the ability of issuers to reprice existing accounts and balances allowed issuers to correct pricing if their initial assessment of risk proved incorrect at the same time because issuers were free to reprice it was not necessary to set interest rates based upon the issuers upfront assessment of risk 5for example under the card act issuers generally can t change the interest rate on a card during the first year that the account is open except in certain limited circumstances such as a rise in the index that a variable rate card is coupled to or the end of a low or no interest promotional period they must generally provide 45 days notice if they intend to change the interest rate on future transactions and can only raise the rate on existing balances if the cardholder has missed two consecutive monthly payments and again they must provide 45 days notice 6 in theory at least the 45 day period gives the cardholder some time to shop around for a card with better terms as a result of these changes consumers can count on a card issuer s upfront pricing to provide a more accurate picture of how much the card will cost them at least for a longer period of time than before and credit card issuers have to be more conscientious in their underwriting practices since current laws make it more difficult to attempt a do over if they find they misjudged an applicant s credit risk can a credit card issuer change your credit limit yes credit card issuers have a lot of flexibility in raising or lowering the credit limit on a customer s card if they decide to lower it they are generally required to provide the cardholder with a notice of adverse action according to the consumer financial protection bureau this notice should either provide specific reasons for the action taken or allow you to request a statement of specific reasons 7 the credit card issuer might also decide to raise your credit limit after a period of time if you ve proven to be a good customer this can happen automatically as issuers periodically review their existing accounts you can also request a higher credit limit on your own sometimes simply by filling out an online form you re most likely to be approved by the issuer if you ve consistently paid your bills on time and your income or credit score has risen since you first applied for the card 8