January 31, 2012

Current averages:

• Average consumer credit card rate, overall market: 16.75 percent
• Average consumer non-rewards credit card rate: 14.72 percent
• Average consumer rewards credit card rate: 17.63 percent
• Average student credit card rate: 17.06 percent
• Average business non-rewards credit card rate: 14.74 percent
• Average business rewards credit card rate: 15.53 percent

The US bank prime rate remained unchanged once again, at 3.25 percent. Despite that, the rate on consumer rewards credit cards rose during the second half of January, pulling overall consumer credit card rates up as well.

Even with the other categories remaining stable, when compared with the broader interest rate context, the environment for credit card rates has not been particularly favorable to consumers over the past year. For example, 30-year mortgage rates ended January 2012 at 0.78 percent lower than they were in January 2011. Credit card rates didn’t experience nearly so great a drop, and some categories actually rose.

Overall, consumer credit card rates dropped by an average of 0.13 percent in the year ending Jan. 31, 2012. Interestingly, consumer rewards and non-rewards rates went in opposite directions during that period. Consumer non-rewards credit card rates did fairly well, falling 0.60 percent. Consumer rewards credit cards, in contrast, saw rates rise (slightly) 0.08 percent over the same period.

Student credit cards had the roughest time over the past year, rising 0.83 percent. Business non-rewards rates were virtually unchanged over the period, while business rewards credit cards showed the most improvement, with an average rate drop of 0.68 percent. Still, even this did not match the drop in mortgage rates over the same period.

What explains the differing trends for credit card offers as compared to other consumer loan terms, such as mortgage rates? One factor may be that lenders are more comfortable offering generous terms on collateralized debt than on non-collateralized debt. This view would be consistent with the fact that rates for students and bad credit customers have done relatively poorly over the past year. It may take a stronger economy to improve terms for those customers, though economic growth may also bring a broader trend towards higher interest rates.

Consumer credit card rates

In addition to the rise in consumer rewards credit card rates, there were a couple of other changes in the dynamics of the consumer credit card market. These changes can determine which customers get the best deals.

Due to some changes in rate tiers in the consumer non-rewards category, the spread between average offers for strong and weak credit customers widened. Thus, even though these rate tier changes cancelled each other out with respect to the average for the consumer non-rewards category, customers with the strongest credit would actually have seen conditions improve a bit, while those with poor credit backgrounds would be facing higher rates on average.

In addition, with consumer rewards credit card rates rising while non-rewards rates held steady, the price of earning rewards got more expensive, continuing a trend that has been developing steadily over the past year.

Business credit card rates

Business credit card rates were unchanged in the second half of January. Interestingly, while consumer rewards programs have gotten more expensive relative to non-rewards cards over the past year, business rewards programs have actually gotten relatively more attractive.

Student credit card rates

Though, as noted above, student credit card rates have risen the most over the past year, they were unchanged for the second consecutive survey.

Good credit vs. average credit

The spread between rates for customers with good credit and those for the overall market widened in the second half of January, rising one basis point to 4.08 percent. While this increase is very slight, it does continue a trend which has been in place over the past couple of months.

In total, IndexCreditCards.com surveys information from some 50 different credit cards, and includes multiple credit-rating tiers from many of those cards. Examples of offers surveyed include American Express credit cards, Capital One, Chase, Citi, Discover, and other MasterCard and Visa branded cards. The information compiled not only demonstrates trends in credit card rates over time, but also indicates the different values credit card companies put on different target markets (consumer, business, etc.), as evidenced by the differences between rates for those markets.

Published 01/31/12