"The big influence on credit card rates in 2016 is going to be the Federal Reserve," says Greg McBride, CFA, Bankrate's chief financial analyst.
That means consumers on both ends of the credit spectrum can expect credit card rates to inch up through 2016 as the Fed raises short-term interest rates.
Consumers with so-so credit have already faced rate increases and can expect more of the same. "Even in a static interest rate environment, cardholders with riskier credit profiles have seen their rates go up over the past several years," he says.
Borrowers with excellent credit will experience the biggest change. This group has seen plenty of competitive offers. But now, as interest rates increase, those with strong credit profiles will start seeing fewer 0% and low-rate offers, McBride says.
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Credit card interest rates are based on a contractual floating-index rate, usually the prime rate. And that rate is typically tied to the federal funds rate.
Generally, lenders add a margin to the prime rate to determine the annual percentage rate on credit cards.
That doesn't mean there won't be competitive credit card offers in 2016. McBride says that as rates start to move higher, borrowers will be looking to move balances around. Issuers will want to take advantage with balance-transfer offers.
Still, consumers may see shorter time periods on 0% balance transfers and, eventually, higher rates on transfers, McBride says.
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