If you are one of the estimated 40 percent of credit card borrowers who keep a running balance, brace yourself for higher rates. It won’t make for much of a monthly increase in interest charges, but it could add up to significant borrower costs over time, especially for those with high balances.
The Federal Reserve’s December decision to boost its benchmark interest rate by one-quarter of a percentage point will mean higher card rates within the next two billing cycles, according to CreditCards.com senior industry analyst Matt Schulz.
Most consumers will see their credit card rates nudge upward by the same amount, one quarter of a percent point, as the Fed’s move, he said.
Credit reporting agency TransUnion reports that the combination of interest rate increases and more subprime borrowers will generate a surge in delinquency rates in 2017 for both auto loans and credit cards.
On the credit card front, we have seen the percent of subprime accounts reach their highest level since the end of 2010; for auto finance, this figure is now at its highest point since the conclusion of 2013,” says Nidhi Verma, senior director of research and consulting in TransUnion’s financial services business unit.
TransUnion projects the credit card delinquency rate will continue to rise to end the year 2017 at 1.82 percent, its highest level since the fourth quarter of 2011 and a 6.1 percent increase from the expected fourth quarter 2016 delinquency rate.
While delinquency rates are expected to rise for most credit products, mortgage loans will like continue a downward trend that has now seen delinquency rates drop every quarter since the third quarter of 2013, TransUnion says.
“After 22 straight quarters of declines in card delinquency between 2010 and 2015, we observed an increase in the third quarter of 2015,” says Paul Siegfried, senior vice president and credit card business leader for TransUnion. “Since then, we’ve continued to observe higher delinquencies.
In the third quarter of 2016, subprime account volume grew 14.7 percent, the largest growth rate since TransUnion began tracking such accounts in the third quarter of 2009. However, subprime accounts comprised only about 10 percent (39.6 million) of the 398.5 million credit card accounts in the third quarter of 2016.