Latest Fed Cut–Good News for Credit Card Consumers?
Today, in a move to stimulate lending and spending, the Federal Reserve cut its key lending rate by half a percentage point to 1.5%. The Fed’s hope is that this rate cut will encourage lenders to loosen their tight squeeze on lending and new credit.
The optimistic view is that the rate cut can be good news for consumers if rates drop for credit cards, automobile loans and business loans. It might also result in stabilization in credit card approvals and credit card limits.
In the past few months, we have seen a decline in approvals for credit card applications and a decrease in credit limits. This is the creditor’s way of pulling up the drawbridge to protect themselves from additional risk and potential defaults. Unfortunately, that kind of action penalizes and rejects some qualified applicants.
The rate cut will benefit some cardholders with variable rates because their interest rate may drop in the next 30-45 days. However, each and every cardholder will not see a rate cut.
There are opposing forces that can even cause an increase in your rate, despite the rate cuts. Credit card issuers not only care about your credit history, but they are now paying much closer attention to predicting if you will be a credit risk in the future. If they see that you might be a future credit risk, they can use this as a reason to increase your rate today.
Other forces that may cause your credit card rate to increase instead of decrease:
* You are considered a risk if your credit score is low or was recently lowered.
* You are considered a risk if your balance is close to your credit limit with this card or other cards–even if it was the issuer who lowered your limit and that caused your balance to be closer to your limit.
* In the terms and conditions, many issuers give themselves the right to change rates at “any time for any reason” or because of market conditions.
* Some issuers’ terms and conditions can increase rates because of bad economic conditions. This time of failing banks, tightened credit markets and higher defaults is one of those times.
If your issuer doesn’t drop your rate, consumers can call and ask for a lower rate. If the issuer will not lower your rate, continue building a good payment history and credit score, then ask again.