As stock prices fall, will lenders raise their interest rates? Will there be a limit on how much we can charge on our credit cards?
The stock market is not directly related to the interest rates lenders offer to consumers and has no impact on your credit card limits.
In response to the COVID-19 pandemic, the U.S. Federal Reserve lowered interest rates to near zero, which means it will cost lenders less to borrow money. Often, that savings is at least partially passed on to consumers, who may then be able to get a new loan at a lower interest rate than before.
If you've been thinking about making a major purchase and your current financial situation is strong, you may be able to secure a loan with favorable terms. Recent activity in the stock market in and of itself should have no bearing on your ability to secure a loan unless you plan to sell stock to make a down payment.
Similarly, if you are responsibly using and maintaining your credit cards, they will be there for you to use in the coming weeks and months. Of course, that doesn't mean you should charge more than you usually do.
Your credit utilization ratio (the percentage of available credit you're using) is the second most important factor in your credit scores, so increasing credit card balances could have a negative impact on your scores. To determine your utilization ratio, divide the total of all your credit card balances by your total credit limits. Consumers with the best credit scores tend to have utilization rates of less than 10%.
It's important to remember that while credit cards can be great in an emergency, you should not use them to live beyond your means. Even in uncertain times like these, you should always have a plan to repay each charge that you make.
Safeguarding Your Credit
Having a strong credit history can be especially beneficial during times of financial uncertainty. Your credit report, and the credit scores calculated from the information on it, plays a large role in determining whether you will be approved for certain goods and services, and also how much you will pay for them.
Whether you are taking out a loan, renting an apartment or opening a utility account, having a strong credit history means saving money both upfront and in the long run—and that can make a big difference in your overall financial health.
No matter what the stock market is doing, it's important to remain focused on safeguarding your credit history and protecting your credit rating. That means monitoring your credit reports frequently, making your payments on time as much as possible and keeping credit card balances low.
Thanks for asking.
Jennifer White, Consumer Education Specialist