Credit card rates may dip for some
By Ellen Cannon • Bankrate.com

With Americans carrying more than $900 billion in revolving -- or credit card -- debt, according to the Federal Reserve, many are hoping the half-point rate cut made by the Fed in September will bring down the annual percentage rate they pay on their credit cards.

"Lower interest rates will begin filtering through to cardholders as soon as next month's statement," says Greg McBride, senior financial analyst at Bankrate. "But don't be surprised if it takes as long as three months before you see that lower rate, as issuers are quick to pull the trigger on an increase but often drag their feet on a decrease."

Ken Paterson, director of the credit advisory group at Mercator Advisory Group, concurs: "For credit card consumers who have variable-rate cards that reprice quickly, they'll see an immediate benefit. Without immediate repricing, though, the change in rates is probably down the road."

Currently, the average APR on a standard fixed-rate card is 13.48 percent and the average variable rate is 14.57 percent, according to Bankrate's Interest Rate Roundup. Those rates have fluctuated within 50 basis points of those numbers for nearly a year. Credit card interest rates follow the prime rate, rising or falling as it changes.

Cardholders can find out when their card issuer reprices cards by looking at the terms and conditions of their cardholder agreement. Most cards are priced at 1 percent above the prime rate published in The Wall Street Journal. (The terms and conditions for all cards are available online at the issuers' Web sites.) That same disclosure should tell you when they adjust the rates. Capital One's No-Hassle Rewards card, for example, reprices quarterly, while Chase and Citibank reprice monthly.

How do card issuers calculate rates? Here's what we found in the terms and conditions on the companies' Web sites.

When do card issuers change rates?

• Capital One No-Hassle Rewards card How do you calculate my variable rate? We calculate your variable rate by adding a percentage to the prime rate published in the "Money Rates" section of The Wall Street Journal on the 25th day of December, March, June and September. If the Journal is not published on that day, then see the immediately preceding edition. If Prime changes, your new rate will take effect on the first day of your January, April, July and October billing period. • Chase Freedom card The "Prime Rate" is the highest prime rate published in the Money Rates column of the Wall Street Journal two business days before the Closing Date on the statement for each billing period. Variable APRs are based on the 8.25% prime rate on July 5, 2006. • Citibank Diamond Preferred Rewards card How do we calculate variable rates? For each billing period we use the prime rate published in the Wall Street Journal two business days before the Statement/Closing Date.

Credit scores influence rates
Despite a rate cut, not every cardholder will necessarily see a reduction in their APR.

"Most companies have moved to risk-based pricing," says Paterson, which means issuers assign an interest rate based on a consumer's credit score and credit history. They look for the length of the credit history, the percentage of total credit in use, the types of credit you have (credit card, mortgage, auto) and how many new accounts you've opened.

"Typically people who are flipping cards to get a better rate can get it sometimes, but changing cards frequently can negatively affect their credit score," says Paterson.