Despite the recent rate cut made by the Federal Reserve, credit card interest rates may be on the rise. This is because credit card companies are worried that credit card defaults are the next leg of the financial crisis. As a result, credit requirements are tightening — and interest rates may be rising.
Credit card companies and interest rates
Credit card companies set interest rates using what is called the “prime” rate. The prime rate is the Fed Funds rate plus 3 points. So, with the Fed rate at 1%, the prime rate is 4%. Credit card companies express their rates as prime plus a certain amount. If you have good credit, it may only be prime +6, meaning you have a 10% interest rate. Poor credit may see prime +15 or more.
Some of the best credit card companies are changing the way they figure rates. So instead of prime +7, you might see prime +9. Even with the reduction in the interest rate, you are paying higher interest.
So, keep an eye on your credit card statement. Your interest could be going up.
November 10, 2008 at 6:17 pm
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