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Credit card companies will no longer be able to raise interest rates overnight, and will only be able to implement an increase twice a year, under a new government agreement.
The announcement follows moves by the government to encourage card companies to treat customers more fairly after it emerged lenders had been increasing interest rates, often at short notice.
Figures from financial information firm Moneyfacts show the average APR paid by credit card customers has risen from 16.6% to 17.7% since last December, while the base rate has fallen from 5.5% to 2%.
In some cases borrowers have faced a sudden increase of more than 10%, piling on the problems for those already struggling with their repayments.
Last month, card providers were called to meet the business secretary, Lord Mandelson, and consumer affairs minister, Gareth Thomas, who told them to do more to help hard-pressed borrowers settle their debts.
Lenders were given two weeks to come up with a set of "fair principles" and warned that the Office for Fair Trading would be asked to investigate if they failed to agree on a plan.
Under the principles announced today, card providers will not be able to raise interest rates on credit or store cards for at least a year after a new borrower has taken out a deal. After that period they will be able to increase rates every six months, but each time they do so they must give consumers 30 days' notice of any changes, and give them the chance to pay off their outstanding debt at their existing lower rate and shop around for a new deal.
However, there will not be a cap on the amount by which lenders can increase their rates.
In a bid to make price changes more transparent the fair principles state: "If the customer asks, we will ensure that our staff are able to provide the customer with an explanation as to why an interest rate may have been increased."
There are also pledges to help borrowers who have fallen behind with their repayments. Those who have failed to make payments for two months or more or have sought help from a debt advice agency will not face a rate increase.
Thomas welcomed the principles, which will come into force on 1 January as credit card borrowers wake up to face the new year debt hangover. Following a meeting with lenders yesterday he said: "I recognise that these changes will not be without financial pain for credit card companies, but it was vital that we nipped in the bud the bad practices that were causing real hardship for borrowers.
"These commitments will help families manage their finances and cope with repaying their debts."
Sandra Quinn, a spokeswoman for the card issuers' trade body Apacs, said the change would help consumers in difficulty, "but ideally we'd like to help ensure customers don't get to this point".
"If you do borrow on a credit card or plan to at this time of year – as so many of us do – make sure you know how you plan to repay it.
"Credit cards offer great flexibility for borrowing in the short-term but can be expensive if you borrow over a longer period."
Darren Cook, a spokesman for Moneyfacts, said lenders had been raising their rates as the risk of customers defaulting on their repayments increased, and that the new announcement would force many to review their prices before 1 January.
"The risk of defaults is increasing so customers shouldn't be surprised if they get a letter from their lender over the next couple of weeks saying prices have gone up," he said.
Although borrowers will be given time to look for a new deal if they are unhappy with rate changes, Cook said many would struggle to get a new card, particularly those who were struggling with repayments.
"You can't pick and choose like you could last year because the goalposts have moved," he said.
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