A penalty rate is a (usually significantly) higher interest rate that is applied because you did not honor the terms of the cardholder agreement. Typically, a penalty rate is triggered when you do not make your payment (or your payment “bounces”).
Penalty rates apply to future transactions, and can also be applied to an existing balance if you are more than 60 days late.
If your credit card company applies a penalty rate to your account, it must review the increase at least every six months and reduce your rate within 45 days of the review if it determines that a decrease is justified. Generally, that means after you’ve made six consecutive on-time payments, though some card companies will reverse the penalty rate sooner—for example, after just three on-time payments.
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