Credit card rates could rise due to the recent U.S. credit rating downgrade by Standard & Poor, credit analysts have warned.
Treasury rates were quite stable in morning trading following the S&P announcement, but even minor waves through the yield curve will impact consumer borrowing, TIME reports.
John Ulzheimer, president of consumer education for SmartCredit.com, said credit card holders who regularly revolve a balance will be among the first to feel the effects.
He predicts cardholders will see increases within the next three to six months, and sooner if one of the other ratings agencies follows S&P by also downgrading U.S. debt.
Had the U.S. defaulted recently due to the debt ceiling issue, economists were predicting an up to 5 percentage point increase in the prime rate, reports TIME.
As it stands, Ulzheimer says rates could rise by 2 to 3 percent. In other words, if someone has a card with a 12 percent APR today, they may have to pay 15 percent by Christmas.
The Credit CARD Act of 2009 has prevented card issuers from being able to drive up an APR on existing balances unless a cardholder doesn’t pay on time.
They also can’t increase the APR on new balances without providing a 45-day notice and the chance to close the account — if the person has a fixed-rate card.
But the law exempted variable-rate cards — those on which the interest is tied to the prime rate — from that provision, reports TIME.
Ulzheimer says most credit card companies switched customers over to variable-rate cards en masse as a result.
