What Does The S&P’s Credit Downgrade Mean For My Credit?

Unless you are living under a rock, you should be well aware that the stock index and credit rating agency Standard and Poor, “S&P,” has issued a shot across the bow to the US government to clean up its debt and spending habits. Though Congress and the White House were able to agree on legislation that would cut spending and reduce the public debt over the next decade, S&P ultimately lowered its credit rating of US debt from AAA to AA+ for the first time in US history. For many people, this is rocket science but it has clear implications for the average consumer.

Higher interest rates to be expected on credit cards

There is no direct correlation between public and private debt. However, many bank interest rates vary according to US Treasury Bond yields. If the US government cannot be expected to pay back its debts as promised, which is essentially the implication of the S&P decision, US bonds are devalued. In effect, there is an indirect correlation between the ability of the US government to pay back its debts as promised, and banks issuing new credit to consumers. If the US government is delinquent on its debt, consumers pay higher credit card APRs.

The fallout from the S&P decision is difficult to predict, but those in credit card negotiations should probably expect fewer leniencies from their credit card companies. Credit card companies will be forced to issue credit cards at higher interest rates, and at a reduced profit. This is to curb risk. Traditionally, credit card negotiations are allowed for anyone who has missed payments. Now, any borrower who has defaulted on his or her credit card payments may find it more difficult to negotiate a reduced, lump sum settlement as banks are now less able to turn a profit elsewhere.