How will the Downgrade affect your Credit Cards?

The result of the S&P downgrading the US Treasury Bond score basically labels the United States as a higher risk borrower. One of the results of this action will possibly increase the interest rates of global creditors lending to the US and increase the return to those investors. This is definitely a wake up call for many, but will this rise in interest be seen in the interest rates of credit cards as well? The answer is no! Let me explain.

If we were asking about mortgages, the answer may be yes, since mortgage rates are tied to the Treasury bond yields, but credit cards are not. The interest rates for credit cards are based on the Federal Reserve prime interest rate, which is not effected by the lowering of the Standard and Poor’s US Treasury bond credit rating. The interest rates that affect credit cards continues to be at a all time low. The Chairman of the Federal Reserve has promised to leave these rates untouched until at least 2013, keeping credit card rates reasonable for consumers.

We also have The Card Act of 2009 that prevents credit card providers from randomly raising consumers interest rates without due cause. They are also required to provide a 45-day notice prior to any increase in APR. This gives the fixed-rate cardholder a chance to cancel the account instead of accepting the increased interest rate. Any justified increase in a person’s credit card interest rate can only be applied to new purchases. The old balance will maintain the old interest rate until the previous balance has been paid off.

While the stock market may be painfully effected, credit cards should not be drastically effected by the lowering of the Treasury bond rating. The interest rates on your credit cards may not be changed at this time, it would still be a wise move to work on cutting back the use of your credit cards and lowering your current debt amount.