Credit card rates: The price for bad credit is rising
February 15, 2012
- Average consumer credit card rate, overall market: 16.88 percent
- Average consumer non-rewards credit card rate: 14.91 percent
- Average consumer rewards credit card rate: 17.73 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: 15.69 percent
The US bank prime rate remained at 3.25 percent. This rate has now been unchanged for over three years; based on Federal Reserve data going back to the late 1940s, this now marks the second-longest stretch with no change in the bank prime rate. From September of 1960 through November of 1965, the bank prime rate remained unchanged at 4.5 percent, a stretch of over five years. Based on statements the current Fed has made about keeping interest rates low through the next couple of years, the current streak may yet grow to challenge that record.
In contrast, credit card rates were not at all stable in the first half of February, with significant increases in both consumer categories, as well as in rates for business rewards credit cards. Credit card rates in those same three categories have moved upward overall so far this year, especially in the consumer categories. However, the most distinct trend in credit card offers is that rates are rising especially for customers with weaker credit histories. This gives some clue as to what is going on with credit card rates in general.
Credit card rates are rising when other interest rates are stable or even falling because credit card companies are becoming more selective about which customers they want to attract. Customers with good credit are still welcome, but those with poor credit histories face steadily rising credit card rates. This means that the price for having poor credit is rising, while the advantage of maintaining good credit is more important.
Consumer credit card rates
Non-rewards credit card rates rose to an average of 14.91 percent from their previous level of 14.72 percent. Consumer rewards credit card rates rose a little less steeply, climbing by 0.10 percent to 17.73 percent. Combined, these increases were enough to boost the overall average consumer credit card rate by 0.13 percent, to 16.88 percent. These increases are entirely attributable to rising rates for customers with poorer credit histories, as rates for customers with good credit were stable in the first half of February, and have actually fallen since year-end.
Business credit card rates
Rates for business rewards credit cards rose by 0.16 percent to 15.69 percent, while business non-rewards cards remained unchanged. The increase for business rewards credit cards marked the first change in either category so far in 2012.
Student credit card rates
Rates for student credit cards remained unchanged so far in 2012, at 17.06 percent.
Good credit vs. average credit
The spread between rates for good credit customers and average credit customers jumped by 0.13 percent in the first half of February, to 4.21 percent. When the year began, this spread was at 3.69 percent, meaning that on average, the price for having less-than-perfect credit has risen by 0.52 percent in the first six weeks of 2012. This makes a difference in how people should shop for credit card rates.
Credit card offers generally feature multiple rate tiers, or a range of rates. The lower rates are for customers with the best credit histories, and the higher rates are for those with poorer credit histories. Therefore, when shopping for credit card rates, consumers need to focus on the end of the rate spectrum that will likely apply to their credit standing. With the high end of rates now topping out at 25.99 percent, customers with shaky credit histories need to be especially careful when they shop for rates.
About IndexCreditCards.com credit card rate monitor
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, 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 02/15/12 (Modified 04/03/12)