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2007-10-15 05:10:21

How Can Fed's Rate Cut Influence Your Credit Card Deals?

As a rule, credit card issuers are likely to raise interest rates, and when it comes to lowering, they hang their legs. After Fed's half-point rate cut in September, millions of Americans sighed with relief. Credit crunch seems to be the thing of the past, and cardholders sincerely hope for better interest rates on their credit card deals, not to mention those who try to settle their debts. Financial experts cast doubt on this point. There are many factors that influence your interest rates. The question is, "Who will see the results of this cut and when?"

The answers can be found in our credit card agreement. The terms and conditions of your credit card deals will explain everything. If you have a fixed-rate card, the average APR is about 13 percent. Meanwhile, the rate of variable-rate cards is a bit higher, i.e. about 15 percent. This rate speaks for itself, it changes according to the rises and falls of the prime rate.

So, if you happen to be a variable-card owner, you should be aware of your interest rate adjustment. Some credit card companies reprice every month, while the others do it every quarter. As you understand, the effects of Fed's cut for cardholders may be different. It may be a matter of months, and some lucky credit owners may see the reduction pretty soon.

It must be said that a type of the card is not the only factor that affects your interest rate. One of the leading causes that may influence rate reduction is your credit history. This is the situation when you can benefit from your high score and good credit history. In fact, most companies use the method of risk-based pricing. It means that a lender will offer you better interest rates if you prove to be good at handling credit. The length of your credit history and credit utilization are also of great importance.

You may jump into credit card deals with those lower interest rates and cash back rebates. In truth, such deals are not the best choice, as analysts expect another reduction of the prime rate. And your burning desire to snatch a large sum now may be of no use.

Savvy consumers are waiting for rate cuts before holiday season. If Fed will really decide to encourage customers, they will be motivated to make more purchases and have no fears about negative effects of heavy spending. So, let's hope for the better, for doing holiday shopping, we completely forget about the limit of our budget.

The bad news is that credit debt of American consumers is still pretty high. Unfortunately, it seems to be a growing tendency. We seem to lose common sense when we see those 0% rates in the advertisement. It's out of the question that low interest rates look pretty enticing. But don't be too naive to think that these rates are once and for all.

If you are a prudent customer, you are certainly aware of the real value of such credit card deals. And one should be very vigilant before signing for a new plastic with attractive features.

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