myFICO: Are Rising Interest Rates Affecting Your Credit Card? | news
SAN JOSE, Calif.–(BUSINESS WIRE)–Feb. August 2022–
As inflation drives up daily spending, the Federal Reserve raises interest rates to cool the economy. The Fed raised its target federal funds rate by 0.75% in June 2022, the largest increase in almost 30 years, and could announce more hikes before the end of the year.
Rising interest rates can affect your finances in a number of ways, and here’s what you need to know if you have a myFICO credit card.
For more information on loans and credit, visit the myFICO blog at https://www.myfico.com/credit-education/blog
Your credit card rate may increase
Most credit cards have a variable interest rate, which means your card’s Annual Percentage Rate (APR) can change over time. Many cards’ rates depend on a benchmark interest rate, such as the federal funds rate, and the benchmarks are often correlated to the federal funds rate. As a result, when the Fed raises its interest rate target, your credit card’s APR may also increase.
Card issuers generally need to give you at least 45 days’ notice if they want to increase your APR on new purchases. And they can’t increase your APR on existing balances unless there’s a specific exception, e.g. B. If your payment is 60 days overdue. However, a changing reference rate is an exception, which means that if your card has a floating rate, your rate could automatically increase on new and current balances.
The rate changes could also have a significant impact on how much interest you earn on your card, leading to a higher minimum payment. According to data from Experian, the average credit card debt balance in 2021 was $5,221. If you have this balance and your card’s APR increases by 0.75%, you’ll be earning over $10 more in interest every day.
What can you do if your card’s interest rate goes up?
While you may not have a say in whether your card issuer increases the interest rate on your card, there are steps you can take to limit the impact of a change in interest rates.
If you can pay your credit card bills in full each month, you usually don’t have to pay interest on new purchases. And don’t worry, the myth that carrying a credit card balance will help your FICO ® score isn’t true – you can save money by cashing out your balance in full and having an excellent FICO score.
But that’s not always realistic, and if you’re working on paying off a credit card balance, you might consider these alternatives:
- Consider a balance transfer card. Some credit cards give you a low or 0% APR on funds you transfer to the card. These promotional offers may only be available to new cardholders and you may be required to pay a transfer fee for the amount transferred. However, if you can save more than you pay in fees, you may be able to come out on top and cash out your balance at 0% APR during the promotional period.
- Take out a consolidation loan with a fixed rate. Another option might be to take out a fixed rate personal loan and use the money to pay off your credit cards. The interest rate and monthly payment on the loan do not change, and you have a clear schedule for paying off the debt. However, be careful when using your cards and resolving credit card debt after taking out the loan.
- Ask for a lower interest rate. After an automatic rate increase, you can try asking your card issuer to lower your rate again. You may have a better chance if you have been a customer for a long time or if your FICO® score or income has increased since the card opened. If the card issuer doesn’t agree to a permanent change, you can also ask the representative if there are any temporary assistance options.
Creating and using a budgeting system can also be helpful when paying off debt and trying to avoid overspending. While budgeting won’t affect your interest rates, paying off balances quickly can save you money overall.
Improve your credit score to qualify for lower interest rates
Your FICO® score can affect the interest rate you receive on a new credit card or loan, as well as the special interest rates you receive on your current credit cards. Even if you can’t control interest rate changes, there are steps you can take to improve your FICO score. For many people, paying off credit card balances and making timely payments on credit cards and loans can be important steps in getting and maintaining a good FICO score.
myFICO makes it easy for you to understand your creditworthiness with FICO ® scores, credit reports and alerts from all 3 bureaus. myFICO is the consumer division of FICO – get your FICO scores from the people who create FICO scores. For more information, visit https://www.myfico.com/credit-education/
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KEYWORD: CALIFORNIA UNITED STATES NORTH AMERICA
INDUSTRY KEY WORD: PROFESSIONAL SERVICES EDUCATION FINANCE OTHER EDUCATION BANKING PERSONAL FINANCE
Copyright Business Wire 2022.
PUBLICATION: 2022-08-23 12:34 / DISC: 2022-08-23 12:34
Copyright Business Wire 2022.