27 Jul 2015

DEFINITION of ‘Opt Out Right’
A consumer’s authority under the 2009 Credit CARD Act to disagree with a credit card issuer’s proposed changes to interest rates or fees. Opt out rights let consumers choose to close their accounts when they don’t agree with an issuer’s new terms and conditions. The consumer then has five years to pay off any balance under the existing terms. The card issuer cannot require immediate repayment in full when the consumer opts out and closes the account.

The CARD Act requires credit card issuers to notify consumers at least 45 days before changing the terms of their credit card agreements. Before the Act, it was up to individual issuers whether to let consumers opt out of rate and fee increases. The new rules are supposed to make it easier for consumers to understand and manage credit and prevent credit card issuers from taking advantage of consumers.

Opt out rights do not apply to increases in minimum monthly payments. Also, if a credit card has a variable rate, which means its interest rate can increase when the prime rate increases, a consumer cannot opt out of these rate increases. These rate increases aren’t related to the consumer’s creditworthiness, but to economic conditions. Consumers who are delinquent on their credit card payments also cannot opt out of interest rate increases.

Opting out means your minimum monthly payment could increase to double that of your existing monthly payment or to the amount necessary to pay off your balance in five years, whichever is less. Opting out also means losing access to that credit line. Having less available credit can lower your credit score, because the more available credit you have and the less of your available credit you use, the lower your credit utilization ratio, which is a major component of your credit score.

On the plus side, opting out of a rate increase and paying off your balance means getting out of debt and saving money on interest. Reducing debt will do more to improve your financial situation than worrying about your credit score. An exception would be if you’re about to apply for a mortgage, because a hit to your credit score could increase your mortgage rate.

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