Another Rate Cut–Good News for Credit Card Consumers?
The Fed cut the federal funds rate by one-fourth of a percent on Wednesday. The rate is now 2.00%, a decline of 3.25% since September 18, 2007. This key interest rate has now declined seven times in seven months, but analysts predict that this is probably the last rate cut in the foreseeable future.
What impact have these cuts had on credit card customers? If you carry a balance of $5,000 and your APR is decreased 3.25%, you will save $162.50 over the course of a year. Variable rate credit cards must reflect these decreases as they occur. However, there are two factors that could prevent you from fully benefiting from these rate cuts.
According to the Terms and Conditions of most credit cards, issuers have the right to change their rates at any time according to market conditions. This gives them the opportunity to raise rates at any time. So your card could show an APR decrease right now but then may be subject to an increase in the future. And this can take place with very little notice.
Secondly, your card’s APR may increase based on what an issuer perceives as increased risk with your specific credit. It could be that you have been late on a recent payment or exceeded your credit limit a couple times in the last 12 months. Perhaps your credit score has declined for some other reason. These are all factors that could cause your APR to increase, in some cases, substantially.
There are some definite tips for a consumer during these times of fluctuating rates. It is the consumer’s responsibility to check the interest rate and the credit limit on your credit cards. Check this every month. Stay well below your credit limit so you have room to make charges in case of emergency. If you see your APR increasing and you have been a good customer, call your credit card company, say you have some very attractive offers from competitors and ask for your rate to be lowered.
A consumer can always shop for a new credit card should their rates become too high on the current card. You are not married to your current credit card for life. While it’s not good to change cards on a regular basis, a consumer should consider doing so if their rate is too high. If you have a good credit score and a good payment history, but your rate is currently over 12%, you need to look at other cards with a lower rate.