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What the Federal Reserve rate hike means for credit card users

On Behalf of | Dec 24, 2016 | Credit Card Debt

When consumers in Tennessee purchase things on credit, those purchases are generally subject to interest. Credit users make monthly payments, some of which goes to paying off the purchase or loan itself and some of which represents interest paid to the lender. What interest rate a person receives can be subject to a few different variables. One of those is based on the interest rate set by the Federal Reserve.

According to CNN, that rate was recently subject to an increase for only the second time in 10 years. The rate increase was 0.25 percent. Many are optimistic that this rate increase shows that the economy is strengthening. Jobs are up and unemployment is down. If things continue on this upward trend, chances are that further rate increases may occur in the near future.

So what does that mean for consumers? As Bankrate points out, when the Federal Reserve rate increases, interest rates on credit cards usually rise as well. While the amount of this rate will affect 82 percent of consumers by less $10 per month, some people may see a steeper increase.

This rate increase, combined with the fact that lenders are once again issuing cards to subprime borrowers, will likely lead to more people falling behind on their payments next year and potentially being in default. Subprime accounts are usually those issued to people with credit scores lower than 600. Despite the delinquencies anticipated to happen in 2017, their numbers are not expected to reach the point that they did shortly after the Great Recession.


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