Why Your Credit-Card Rate Might Not Be Falling
The prime rate looks set to keep falling following the Federal Reserve's latest rate cut. Since the consumer credit-card rates are in part measured by the prime rate, consumers might expect to see their rates fall as well.
But a number of common catches can keep your credit-card rate from falling with the prime rate.
Your credit card may have a "rate floor" that prevents your rate from falling below a certain level, your credit score may have changed causing your rate to skyrocket or your creditor may raise rates because of economic conditions.
About 90% of credit cards are variable rate, according to Curtis Arnold, founder of CardRatings.com. And most of these are tied to the prime rate as published in The Wall Street Journal plus a predetermined premium: a rate which has fallen three full percentage points since the Fed started slashing rates in September.A rate floor is the minimum interest rate you'll pay, regardless of the prime rate. Say your rate floor is 10% and your premium above prime is 5%. If prime is 8% you'll be paying 13% interest. But if prime falls four percentage points, your rate will only fall three percentage points. After you hit the floor, your rate stops falling. So how do you find out if you have a rate floor before you hit it? It's not always easy. Rate floors may not always be disclosed in credit card contracts, says Linda Sherry, Director of National Priorities at Consumer-Action. But if your contract says the rate can fall "no lower than X%" then you're in luck: You're bank disclosed its rate floor. If not -- or if you've lost the contract your bank sent you -- you can always try and call your bank and ask. Of course, you'll have to navigate an often unwieldy automated answering system and bank on the front-line representative giving you the correct information.
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