In personal finance, which of the following actions can cause the annual percentage rate (APR) on your credit card to increase?

Introduction / Context:
Credit cards are powerful financial tools, but they can become very expensive if the annual percentage rate, or APR, rises due to risky behaviour. Lenders use APR to reflect the cost of borrowing on a yearly basis, including interest and some fees. Understanding which actions can trigger a higher APR is essential for maintaining good financial health and avoiding unnecessary interest charges. This question focuses on an important practical aspect of personal finance, namely how your behaviour, especially regarding timely payments, affects the interest rate you pay on existing and future balances.

Given Data / Assumptions:

• The context is a standard credit card issued by a bank or financial institution.
• APR can change based on the cardholder behaviour as specified in cardholder agreements.
• Common triggers for a higher APR include late payments, missed payments, and severe delinquency.
• Normal positive behaviour, such as paying in full, is assumed not to increase APR.

Concept / Approach:
The key concept is how risk-based pricing works in consumer credit markets. When borrowers behave in ways that signal higher risk, lenders often respond by increasing the cost of borrowing. For credit cards, this can appear as a penalty APR, which is a much higher interest rate applied if the customer violates important terms, particularly payment obligations. In contrast, actions that show responsible use, like paying in full or simply redeeming rewards, do not increase risk and therefore do not justify a higher APR. This distinction between risk-increasing and risk-neutral behaviours guides the choice of the correct option.

Step-by-Step Solution:
Step 1: Recall that APR represents the yearly cost of borrowing on a credit card. Step 2: Recognise that lenders charge higher APRs when they perceive a customer as more likely to default or pay late. Step 3: Identify which action in the options most clearly signals increased credit risk. Step 4: Missing a scheduled credit card payment or paying late signals that the borrower may struggle with obligations. Step 5: Credit card contracts often specify that a late or missed payment can trigger a penalty APR, increasing the interest rate. Step 6: Therefore, among the given choices, missing a scheduled payment is the action that can increase the APR.

Verification / Alternative check:
To verify, consider the other actions. Paying the full balance every month actually reduces the lender's risk because the borrower avoids carrying debt. Redeeming reward points does not affect repayment behaviour at all. Consistently paying only the minimum amount is expensive for the borrower but still meets the lender's requirement and generally does not automatically increase APR, as long as the payment is on time. Requesting a lower credit limit can affect utilisation and credit score, but it is not a standard trigger for a penalty APR. Only missed or late payments are explicitly linked to penalty APRs in most contracts, so the reasoning confirms the correct choice.

Why Other Options Are Wrong:
Paying off the full outstanding balance every month is wrong as an answer because this is considered ideal behaviour and often leads to better offers, not worse terms. Redeeming rewards points is a customer benefit and does not increase risk for the lender. Paying only the minimum amount, although not financially wise, still satisfies the contractual requirement, so it usually does not cause an APR increase by itself. Requesting a lower credit limit might change available credit but is not a direct penalty trigger. Thus these options are not consistent with how penalty APRs are determined.

Common Pitfalls:
A common student mistake is to think that paying only the minimum automatically leads to a higher APR. In reality, it leads to higher total interest paid because the balance remains larger for longer, not because the rate has changed. Another pitfall is to assume that any interaction with the card, such as rewards redemption, can change APR. Examinations often test understanding of penalty APR terminology, and the safest rule is to remember that missed and late payments are major warning signs to lenders. Reading the fine print of your card agreement reinforces this understanding.

Final Answer:
The behaviour that can cause a higher credit card APR is missing a scheduled credit card payment or paying late, which can trigger a penalty APR according to standard card agreements.