It seems very counter-intuitive, and it will likely raise your hackles, but the interest rate on your credit card will likely go up soon. The first question you are likely to ask is, “Why would my credit card’s already high-interest rate go up when the Federal Reserve just lowered interest rates?”
Here at Golden State Partners, we field quite a number of questions from people who are fed up with their credit card issuers’ rates as well as other problems they are having, such as when the issuer apparently arbitrarily restricts your use of your card’s credit limits.
The following is some guidance about what to expect in the coming two months regarding credit card interest rates, as well as how you can protect yourself financially from high-interest credit cards.
What is Going On Now
According to the Wall Street Journal, as of October 2019, the average credit card rate for consumer credit cards is 17 percent. That represents a high point for the past two decades in credit card interest rates. Meanwhile, the Federal Reserve Bank has lowered the interest rate that they are charging banks to borrow from them almost to zero.
The reason the banks are increasing interest rates on their credit cards, according to WSJ, is that they did not receive the profit they thought they would from the huge incentive programs they were offering to wealthy cardholders in the past few years. Premium cards were touted with sign-up bonuses, airfare miles, and hotel stays.
Since the banks did not receive much return on investment from these incentives, they are retaining some of the incentives, to keep wealthy clients using their cards, but they are also raising interest rates to pay for their losses on the incentive programs. This increase in interest rates will not bother the wealthy at all because they have the funds to pay off their balances in full each month. Instead, the costs will be born by credit card issuers’ clients who carry a balance each month in the form of higher interest rates.
The banks also know that a recession is on its way, and the higher interest rates that are paid now will cover their losses in the future when more people will likely be unable to pay their credit card bills. According to the WSJ, the average credit card debt carried by people in the United States is $8,602 in 2019.
Other Reasons Your Credit Card Interest Rate Can Increase
According to Nerdwallet, there also are other legally-acceptable reasons that credit card issuers can raise your interest rate.
Promotional Rate Ending
When your promotional rate ends, the bank has no legal obligation to inform you that your interest rate is about to go up.
Late Payments
If you are behind by more than 60 days, the card issuer can raise your interest rate substantially. This new rate will apply to all existing balances and new charges. The new interest rate can stay in place for six months.
Lower Credit Score
If your credit score decreases substantially, the issuer must provide you 45 days’ notice but can then increase your interest rates. This increase will only hit your new purchases and will not apply to your existing balance. They are required by law to review your credit score in six months but are not required to lower your interest rate, even if your score goes up.
Prime Rate Increase
When the Federal Reserve increases the prime lending rate, the banks can increase the interest rate for all cards that have a variable interest rate. Most cards do have a variable interest rate. You will get no notification of the change.
After a Year
In the first year, unless you are behind on payments, the issuer can’t increase your interest rate, but they can increase the rate as soon as you have had the card for one year. You must receive 45 days’ notice of the increase.
It may seem like the deck is stacked against you with high-interest credit cards. At Golden State Partners, we have solutions for consumers who are struggling under high-interest credit card debts, such as lower-interest debt consolidation loans. Call us today for help