Stable credit card offers favor consumers
September 15, 2012
- Average consumer credit card rate, overall market: 16.89 percent
- Average consumer non-rewards credit card rate: 15.15 percent
- Average consumer rewards credit card rate: 17.64 percent
- Average student credit card rate: 17.34 percent
- Average business non-rewards credit card rate: 14.74 percent
- Average business rewards credit card rate: 15.74 percent
The U.S. bank prime rate remained at 3.25 percent in the first half of September, and stability was also the order of the day for credit card rates. There were no changes in the credit card offers tracked by IndexCreditCards.com for this survey.
Credit card rates have calmed down in general in the latter part of the summer. Every credit card company has its own pricing strategy and credit concerns, but here are three possible reasons for the industry-wide trend towards stability:
- Disruptions from the CARD Act have finally been digested. The Credit Card Accountability, Responsibility, and Disclosure Act (the CARD Act) went into effect beginning in 2010. Among other things, this law imposed restrictions on when credit card companies could raise interest rates, and on how they charged certain kinds of fees. While these provisions protect consumers, they disrupted the long-established business models of credit card companies. Credit card companies had to adjust their product offerings to the new rules, which sometimes meant tweaking interest rates, and sometimes meant eliminating certain credit card offers or introducing new ones. However, with over two years of history under their belts, it may be that credit card companies are finally satisfied that their products and pricing adequately reflect the new regulatory environment.
- Interest rates may have bottomed. Some rate changes are specific to the credit card market, whereas others reflect the broader interest rate environment. The last few years have seen a sustained slide in interest rates generally, but with short-term rates near zero and long-term rates near the historical rate of inflation, it is inevitable that rates would start to level off at some point.
- Inflation has been a non-factor. For any lender, inflation is a threat because it eats into the interest rates that they charge, constricting profit margins. Credit card companies, therefore, tend to respond to this threat by raising interest rates if they think inflation is rising. The Consumer Price Index was more or less unchanged between the end of February and the end of July, meaning that inflation has been a non-factor in recent months.
Credit card rates are sensitive to changes in the economy, and stability isn't exactly a normal state of affairs in economics. A change in the inflation outlook may be as near at hand as the next inflation report or oil crisis, and beyond that, the outcome of November's election could change expectations about the regulatory environment for credit cards. In short, recent stability isn't surprising, but will be difficult to maintain.
Consumer credit cards
Both consumer non-rewards and rewards credit cards remained unchanged for the second consecutive survey. This stability can be helpful to consumers, because it gives them an opportunity to evaluate credit card offers without feeling as though they are chasing a moving target.
Student credit cards
As they settle in for the fall semester, college students - and their parents - shouldn't have to worry about re-evaluating the credit card offers they signed up for this summer, with student credit card rates remaining stable in the first half of September.
Business credit cards
Like consumer and student credit card rates, business credit card rates remained the same, and neither category of business credit cards has changed since July.
Good credit vs. average credit
Since there were no changes in the credit card offers tracked by this survey, the difference between rates for customers with excellent credit and those for customers with average credit remained unchanged, at 3.83 percent.
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 09/15/12 (Modified 05/13/14)