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Credit card rates calm down in late November

 

November 30, 2012

Current averages:

  • Average consumer credit card rate, overall market: 16.77 percent
  • Average consumer non-rewards credit card rate: 15.19 percent
  • Average consumer rewards credit card rate: 17.45 percent
  • Average student credit card rate: 17.54 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 continues to hold steady at 3.25 percent.

After a flurry of activity in the first half of November, credit card rates calmed down in the second half of the month, with no changes in the nearly 50 credit card offers tracked by this survey. This quiet period may have been because the economic news for the period was mixed, but more likely it was because credit card companies find themselves in wait-and-see mode, with major developments pending in the weeks ahead.

The following are some noteworthy economic developments, and a summary of their potential effects on credit card rates:

  1. Inflation. On November 15, the Bureau of Labor Statistics reported that inflation was up just 0.1 percent for the month of October. Prior to that announcement, inflation had been shaping up as a potential trouble spot for the economy, and something that could force credit card rates higher. Inflation climbed by 0.6 percent in each of August and September; October's mild 0.1 percent increase should take some of the pressure off credit card rates.
  2. A strong start to holiday shopping. Early indication is that the holiday retail season is off to a strong start, and an extra-long shopping season this year (due to an early Thanksgiving) adds to the optimism. The effect of economic strength on credit card rates can be a bit complex: while a stronger economy is often associated with higher interest rates, anything which strengthens consumer finances lowers the risk of extending them credit, and thus could lead to lower credit card rates. The key is that if the economy is able to strengthen without inflation perking up, it should be a net positive for the credit card market.
  3. The fiscal cliff. This is the 800-pound gorilla in the room, and it may explain why credit card companies are in a wait-and-see frame of mind. Either the fiscal cliff itself, or any deal made to avoid the fiscal cliff, has the potential to be a real game changer, to the betterment or detriment of the economy. As long as an answer is still pending, financial institutions will be more likely to watch and wait than to commit to new price points.

Again, this was a quiet period for credit card rates, but as always with the financial industry, the next disruption may be just a news cycle away.

Consumer credit cards

Both types of consumer credit card offers held steady in the latter half of November, with non-rewards credit cards remaining at an average rate of 15.19 percent, while rewards credit cards sustained an average rate of 17.45 percent.

Despite this apparent stability, there is still a wide variance among the rates offered by different credit card companies, so consumers would be wise to shop around before committing.

Student credit cards

In contrast to the stability of business credit cards, student credit cards have been the most changeable category in recent months, but they managed to hold steady at 17.4 percent in late November.

Business credit cards

Business credit card rates continued a remarkable run of stability, with neither category having changed since late July.

Good credit vs. average credit

With no change in consumer credit card rates, the spread between rates for consumers with excellent credit and those with average credit remained at 3.95 percent. This rate differential is an indication of the importance of retaining a strong credit rating.

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 11/30/12 (Modified 03/19/13)


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