Behavior-Based Repricing

Behavior-Based Repricing

Investopedia / Laura Porter

What Is Behavior-Based Repricing?

Behavior-based repricing is the credit card industry's practice of increasing or decreasing a card holder’s interest rate in response to their payment history. This most often involves an increase in a customer's interest rate after a failure to make a minimum monthly payment on time.

A single late payment can trigger a substantial increase in the annual percentage rate (APR) in interest that the customer must pay.

Behavior-based repricing can be a positive for credit cardholders who establish a history of on-time payments and give the credit card company reason to lower the interest rate charged.

Key Takeaways

  • Behavior-based repricing is one of several reasons cited by credit card issuers for raising or lowering the interest rate charged on your card.
  • The repricing, in this case, is usually punitive. Your interest rate on new purchases can be raised if your payment is one day late. If it's 60 days late, the interest rate on your balance as well as new purchases can be increased.
  • If you then pay on time for six months, your rate should revert to your standard rate, at least on the balance owed. The card issuer is not required to lower your rate for new purchases.
  • A bounced check or an over-limit balance can also cause behavior-based repricing.
  • Other repricing decisions may be made based on a change in your credit rating, or if it's a variable rate card, a change in the Federal Reserve funds rate.

Understanding Behavior-Based Repricing

Credit card issuers can, and do, immediately increase a cardholder's rate when a single payment is at least 60 days late. This is called a penalty rate or default rate, and may also be imposed if a payment is returned for insufficient funds or if the cardholder exceeds the limit on the account.

The issuers can increase a cardholder's rate if a payment is only 30 days late. However, the increased rate can only be charged on new purchases, not on the entire balance.

The average penalty rate is 28.58%, but a rate as high as 29.99% is not uncommon. There is no federal law limiting the interest rate that credit card issuers can charge, although some states impose limits.

When Your Rate Will Decrease

Under federal law, if you pay your bill on time for six months, the card issuer should reduce your interest rate to where it was, at least for any balance owed. That is called the standard rate.

The issuer may continue to charge the penalty rate on new purchases.

As of late January 2022, the average credit card interest rate nationwide was 16.13%, according to Bank Rate's CreditCards site. That is expected to increase later in the year if the Federal Reserve raises its key lending rates as expected.

The average penalty rate on credit cards is 28.58%. A rate as high as 29.99% is common. There is no federal limit to credit card interest rates, although some states impose limits.

A Measurement of Risk

The concept of behavior-based repricing is unique to the debt industry. That is because the business of lending money adds default risk to the usual list of the hazards of doing business.

In fact, credit card issuers face more risk than most lenders because the balance on a credit card represents unsecured risk. If a customer defaults on an auto loan, the lender can seize the car and sell it to make back the money. A credit card issuer can't repossess the miscellaneous goods and services paid for with a credit card.

Behavior-based pricing is a tactic used by credit card issuers to measure the credit risk of their customers. Customers who always pay on time receive the standard APR. Customers who make a mistake pay the default APR, at least until they pay on time every month for six months.

Check the Issuer's Policy

Every credit card issuer has its own policies regarding behavior-based pricing. Some are more tolerant than others. It is wise to perform a bit of due diligence before opening a credit card account. The impact of behavior-based pricing can be heavy.

For example, a card issuer may give its best customers a 15% APR. If a customer has a $500 balance, that means paying $75 per year in interest fees. But a single late payment could trigger a doubling of the interest rate. The annual interest paid on that $500 in debt will rise to a hefty $150 per year.

The credit card issuer's policy on behavior-based pricing should be indicated in its Disclosures section in a separate section titled Penalty APR.

Behavior-Based Repricing and Consumer Law

Federal restrictions on credit card issuers' late-payment penalties are outlined in the Credit Card Accountability, Responsibility, and Disclosure Act of 2009, a law that protects credit card users from unfair lending practices by card issuers.

In particular, they are not allowed to apply a penalty APR to an existing balance until delinquency of the minimum payment reaches 60 days. 

The law does not prevent the issuers from raising the APR on new purchases if the customer is one day late in paying the minimum due or for various other reasons, such as a decrease in the customer's credit rating.

The same law requires that cardholders be adequately informed of how long it will take them to pay off an existing balance at the minimum monthly rate. That information appears on every bill.

The Credit Card Accountability, Responsibility, and Disclosure Act of 2009 ended some unfair and deceptive practices by credit card issuers and mandated clarity in its disclosures to customers.

How to Use Credit Cards Responsibly

The only smart way to use a credit card is to pay off the balance in full every month. If you do, the interest rate is irrelevant because you're not paying it.

The fact is, interest charges on a credit card raise the cost of everything you purchase unless you pay the balance in full. With the average credit card rate for good customers above 16% a year, the increase is significant.

Shop for a Decent Interest Rate

That said, it's not always possible to pay off the balance in full. You can manage the problem by shopping wisely for a credit card.

Sites such as Compare Credit maintain lists of the best credit cards for people in various financial circumstances. There are "best" choices for people who need to rebuild their credit ratings, for young people just starting out, for people with excellent credit ratings, and for people who just love to wrack up bonus points.

If your primary goal is a low interest rate, you might want to skip the cash-back rewards and bonus point offers and go for the lowest available long-term rate you can qualify for. To qualify for the lowest rates, you'll need a high credit rating and a reasonably low amount of current debt.

Read the Fine Print

Don't forget that "0% APR" offers sound great but that's strictly an introductory rate. Read the fine print to find out when the rate defaults to a higher APR and what that rate will be. It might be a good deal if you anticipate a major expense coming up and are certain that you can pay off the balance before the higher rate kicks in.

In fact, it's best to read the fine print on any offer. Those generous rewards, free miles, and bonus points can disguise an ugly APR number.

What Is Interest Repricing?

Interest repricing is a change in the annual percentage rate (APR) of interest that a cardholder is charged by a card issuer.

Behavior-based repricing is one of the reasons that a card issuer may raise or lower a customer's APR. Those reasons may include a single late payment, a change in the customer's financial circumstances, such as the acquisition of additional debt.

Why Would My Credit Card Interest Rate Go Up?

A credit card company can raise your interest rate for any number of reasons. They can raise your rate if you skip a payment, or if your credit score decreases. If you have an adjustable-rate card, an increase in its stated benchmark like the Federal Funds rate can cause your credit card rate to be increased.

In most cases, federal law requires that you receive 45 days' notice of the increase and that the higher rate be applied only to new purchases, not the entire balance.

The exception is for payment that is overdue by more than 60 days. That is officially a default, and the entire balance will be subject to the higher rate. By federal law, the rate hike on the existing balance must be reversed if the customer pays on time for six consecutive months.

A credit card issuer can raise (or lower) the interest rate on your card for any of several reasons:

  • Your rate can increase from your standard rate to a penalty rate because you paid a bill late, bounced a check, or exceeded your credit limit. If you follow all of its rules to the letter for six months, the interest rate on any balance should decrease to the standard rate. Your rate on new purchases might not decrease.
  • Your rate can increase (or decrease) if you accept a credit card that has an adjustable interest rate. The rate you pay on your entire balance, not just new purchases, is based on a stated rate such as the Federal Reserve prime rate. For example, your rate may be the Federal Reserve prime rate plus 13.3%. The formula will be stated in the credit card disclosure of terms.
  • Your rate can increase if you accept a credit card with a special introductory rate. The special low rate will expire, usually after six to 12 months, and your rate will increase on the full balance as well as new purchases. The exact terms will be in the disclosure of terms.

What Happens to My Credit Card Balance If I Only Pay the Minimum Due?

If you pay only the minimum due on a substantial balance, the interest will continue to accumulate and your balance will decline very little (or not at all if you continue to charge new purchases).

You can get an exact answer to this question based on your current balance. Credit card issuers are required to inform you on your monthly bill how long it will take and how much it will cost to pay off your balance if you pay only the minimum due each month.

The information is eye-opening. For example, if you owe about $4,000 and pay the minimum due each month at an interest rate of 18.2% it will take 14 years and you will pay more than $10,000 over time.

What Is a Good Credit Score?

A "good" credit score is about 670 to 739 in the most commonly used measure, the FICO score. The full range is 300 to 850,

A good credit score is crucial to getting and keeping the best available APR available on a credit card or, for that matter, getting a loan of any kind at a favorable rate.

You can check your credit score at all three major credit reporting agencies for free once a year at That is the federally-approved source.

Your credit card's online site may also provide you with a look at your own credit rating. These are generally updated monthly and may be from any of several sources. Your rating should be roughly the same from any source.

If you are worried about your credit rating and want to track your credit score and credit rating more closely, you might consider a site such as Credit Karma, which compiles its own score based on two of the three major credit bureaus. If you're concerned about credit card fraud damaging your credit report, you can sign up with a credit monitoring service.

Article Sources
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  1. Consumer Financial Protection Bureau. "Is there a law that limits credit card interest rates?" Accessed Jan. 28, 2022.

  2. CreditCards. "Average credit card interest rates: Week of January 26, 2022." Accessed Jan. 28, 2022.

  3. Federal Trade Commission. "Credit Card Accountability, Responsibility and Disclosure Act of 2009," Pages 1736-1737. Accessed Jan. 14, 2021.

  4. Federal Trade Commission. "Credit Card Accountability, Responsibility and Disclosure Act of 2009," Pages 1743-1744. Accessed Jan. 14, 2021.

  5. Compare Credit. "Best Credit Cards of 2022." Accessed Jan. 29, 2022.

  6. Federal Deposit Insurance Corp. "FDIC Consumer News-Fall 2017." Accessed Jan. 29, 2022.

  7. Federal Trade Commission. "Get My Free Credit Report." Accessed Jan. 29, 2022.

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