What Are the Differences Between Introductory Rates and Default Interest Rates?

We live in a culture that considers credit a source of money. Many people are able to live beyond their means for a time by using their credit cards like cash. But reading the fine print that goes along with that handy little plastic card may give you second thoughts the next time you pull it out because industry tricks, such as "introductory rates" and "default interest," can come back and hit you when you least expect it.

Introductory Rates

Introductory rates are limited time offers used to hook you into getting a credit card. Also called "promotional rates," introductory rates expire after a period of time after which you'll be charged the regular interest rate. You'll notice there's always a small symbol next to that headline offering a 0 percent rate, which means you should check out all that itty-bitty writing at the bottom of the page. This fine print lets you know the terms of the rate, but credit card companies know people tend to see that big fat zero and won't bother reading the terms.

Common Introductory Rate Terms

Terms on introductory interest, also known as the annual percentage rate (APR), usually include a time limit for how long the rate will be effective, a default rate if you miss a payment and maybe even a penalty for not paying off the card balance in full by the end of the promotional offer. By law, an introductory rate must last at least six months. After that, the credit card company can charge you the interest rate that was in all that tiny writing when you signed up for the card. Also, if your card balance had to be paid in full at the time the offer expired, the credit card company can also impose a penalty interest rate dating all the way back to the date you signed up for the card.

Default Interest Rates

Default interest rates are applied when you pay late, miss a payment or make a payment but it's less than the minimum due. Default rates are used to make the card company more money while simultaneously making it harder for you to pay off your balance. Default rates can increase your interest rate permanently, and the standard default rate is just under 30 percent. If you read the terms of your card agreement, one of the first things you should look at is the default interest rate.

Universal Default Interest Rates

Credit card companies have also begun using another kind of default rate to raise their card rates, known as the Universal Default Rate. Under law, credit card companies have the authority to raise your interest rate by checking your credit report to see if your credit score has gone down. Anything causing your credit score to drop can be used to raise your credit card interest rate to the universal default rate outlined in the credit card terms.