It is more important than ever to play by the rules with your credit card as punitive rates (punitive rates are those charged when you miss a payment, go over your credit limit, have your credit score deteriorate, etc and are also tied to universal default – that is if you miss a payment on credit card A, credit card B may also raise your rate to the punitive rate) will top 31% for the first time ever on some major credit cards in the US. This is because the Federal Reserve increased their rate to 4.25% which in turn bumped the prime rate this week to 7.25%.
Many credit card issuers tie their punitive rate to the prime rate. For example, Bank of America, Chase and Citibank all set their top rate at the prime rate + 23.99%. That means beginning next month those that hold these cards and have the punitive rate imposed on them will be paying 31.24% in interest.
This is yet another reason for those with punitive rates to pay down your credit card balances as quickly as possible, especially if you have savings in the bank. There isn’t another place that is going to guarantee you a 31% return on your money.