Home > Personal Finance > If the U.S. Credit Rating Goes Down, Your Credit Card’s Interest Rate Goes Up

Comments 5 Comments

Sunday night, we all got the word that a tentative deal to reduce the U.S. deficit and avoid default had been reached. Having now passed House and Senate muster, we wait with bated breath for President Obama to sign the bill into law. Before the deal was reached, each side blamed the other for the debt ceiling spectacle. And it was an outrageous spectacle.

After this deal was on the table, the Internet was abuzz with quotes coming out of Washington. Comments ranged from “we stuck to our principles” to—my favorite—the deal was “a sugar-coated Satan sandwich.”

My reaction to their reaction? Get over yourselves.

In spite of the deal, there’s still a strong possibility that the U.S.’s credit rating will go down. Here’s what I want to know: Do these folks in Washington have any clue how the possibility of a downgrade to our credit rating affects real people? I’m talking about the hard-working people in America who voted for them and put them in office. Yes, all of us.

At one point, I was watching a scene that showed Pelosi and Boehner and others sitting at a long table in the Roosevelt Room at the White House. I couldn’t help but notice the fine china on the table. Apparently, they’re sipping coffee from expensive teacups while thinking about how to get what they want from the guys and gals across the table.

To me, the scene in this lovely room made them look incredibly out of touch. I wonder if anyone in that room mentioned that the credit rating agencies had indicated to various news outlets that if the deficit reduction plan targeted less than $4 trillion, the U.S. could still get a downgraded credit rating. The current deal sits at $2.4 trillion over a decade, which is far short of $4 trillion.

[Related article: If the Debt Ceiling Isn’t Raised, Your Credit Card’s Interest Rate Will Be]

Did anyone in that room stop to think about what it might mean for real people? If the U.S.’s credit rating gets downgraded, interest rates won’t be pretty. Have you ever played dominoes? Think of the U.S. Treasury bonds rate as the first piece to fall. When the rating is downgraded, the U.S. becomes a bigger risk for investors and that makes the bonds’ interest rate go up.

The U.S. government now has to pay more to borrow money. Just like you and I do if our credit score slips. Next, the government needs to charge banks more to borrow money. When this happens, the prime rate goes up. When the prime rate goes up, the interest rates of credit cards that are tied to the prime rate—and most of them are—will increase. And that’s how the consumer gets shafted in all of this.

I’ve seen predictions that rates could go up between 1 percent and 5 percent. This is extra scary because our economy is already rocky. A family who carries credit card debt in order to make ends meet is the real loser here. And if rates go up, this family might have a hard time even making the monthly payments on their credit card.

What makes all this worse is that there still isn’t a long-term strategy in place to reduce the deficit and restore order to the economy, thereby taming interest rates. A joint, bipartisan committee will be tasked with developing legislation that will offer a plan by this Thanksgiving to reduce the deficit by another $1.5 trillion in the future. If the committee fails, there are built-in triggers to cause much bipartisan pain.

Do any of you have any confidence that these people can work together? All I can say is that our elected officials in Washington need to grow up and do what’s best for the consumer. You know, the real people who pay their salaries.

[Resource: Get your free Credit Report Card]

Image: Daniel Lobo, via Flickr.com

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Certain credit cards and other financial products mentioned in this and other articles on Credit.com News & Advice may also be offered through Credit.com product pages, and Credit.com will be compensated if our users apply for and ultimately sign up for any of these cards or products. However, this relationship does not result in any preferential editorial treatment.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Our Owners

Credit.com is owned by Progrexion Holdings Inc. which is the owner and administrator of a number of business related to credit and credit repair, including CreditRepair.com, and eFolks. In addition, Progrexion also provides services to Lexington Law Firm as a third party provider. Despite being owned by Progrexion, it is not the role of the Credit.com editorial team to advocate the use of the company’s other services. In articles, reporters may mention credit repair as an option, for example, but we’ll also be sure to note the various alternatives to that service. Furthermore, you may see ads for credit repair services on Credit.com, but the editorial team isn’t responsible for the creation or implementation of those ads, anymore than reporters for the New York Times or Washington Post are responsible for the ads on their sites.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team