Variable-Rate Credit Cards Entering the Market as Creditors Convert Fixed-Rate Cards
Hiking a fixed-interest rate credit card is going to be a whole lot tougher than it used to be, thanks to the federal credit card legislation set to take effect on February 2.
Fixed Interest Rates to Variable Interest Rates
This legislation leaves many credit card companies in a predicament when it comes to raising interest rates; however, the problem seems to have been averted as creditors turn to converting fixed-interest rate cards into variable ones.
Chase appears to be the leader of the pack when it comes to converting its customers fixed interest rate cards into variable interest rate cards. The new credit card legislation imposes tough standards on raising fixed interest rate credit cards, but excludes their variable interest counterparts, so creditors are taking advantage of this loophole and switching fixed interest rate cards into variable ones, even for those with high credit scores and excellent credit histories.
Hidden in the Fine Print
Creditors see this move as a smart financial one, as most variable rate credit cards are linked to the prime rate, which will most likely see a rebound as the economy continues to improve.
Chase, which started to convert credit cards from fixed rates to variable rates, also included an added margin, which is calculated by Chase.
Because the prime rate continues to be low – in fact, near an historic low – these changes are often not noticed by cardholders, as their interest rate likely holds steady. However, in the months to come, many consumers may begin to see a steady increase in their credit card’s interest rate.
Currently, the prime rate is 3.25; that’s down from 4 percent just a year ago. The federal fund rate, which is also at just .25 percent, down from 1 percent a year ago, often influences the prime rate.
Your Options
This latest tactic by credit card companies is yet another reason to pay careful attention to your card’s terms and conditions. Because of the low prime rate, you may choose to hold onto your current card and then re-visit the situation when the prime rate begins to rise next year. However, you may also choose to simply select another credit card that offers a fixed interest rate to save yourself from the hassle of waiting for the prime rate to increase, along with your interest rate.
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