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Credit card rates settle down as inflation eases


April 30, 2013

Current averages:

  • Average consumer credit card rate, overall market: 16.98 percent
  • Average consumer non-rewards credit card rate: 15.19 percent
  • Average consumer rewards credit card rate: 17.75 percent
  • Average student credit card rate: 17.42 percent
  • Average business non-rewards credit card rate: 14.74 percent
  • Average business rewards credit card rate: 15.50 percent

As of the end of April, the U.S. bank prime rate was still 3.25 percent.

Following a relatively large jump in consumer rewards credit card rates during the first half of April, credit card rates settled down for the most part in the latter part of the month. Adjustments to different rate tiers for a couple of business rewards credit card offers had a largely offsetting effect overall, while all the other categories tracked by this survey were unchanged over the second half of April.

Contributing to this stable environment was calming news on the inflation front. On April 16, the Bureau of Labor Statistics announced that the Consumer Price Index (CPI) declined by 0.2 percent during March. This left inflation at a very mild 1.5 percent for the past 12 months. The decline in the CPI during March represented a change in direction from an unusually high inflation number for February, helping to ease fears that inflation might be flaring up.

As is so often the case, the energy sector played a key role in the inflation story. Falling energy prices were a big factor in the overall CPI decline during March, led by a 4.4 percent decline in the average cost of gasoline. A decline in energy prices over the past year was also instrumental in moderating inflation over that time period. While other components of the CPI (such as food, apparel, and shelter) also impact inflation, keeping an eye on energy prices can be a good way of monitoring which way inflation is likely to turn next.

This is all of significance to credit card rates because credit card companies have to react to changes in inflation to protect their profit margins. The drop in the CPI doesn't necessarily mean that credit card companies will drop their rates in response, but it does remove one possible reason for a hike in rates.

Consumer credit card rates

Both consumer rewards and non-rewards rates were unchanged in the second half of April. This stability should come as a relief to consumers, following a 23 basis point jump in rates for consumer rewards credit cards in the first part of the month.

Student credit cards

The student credit card offers tracked by this survey were unchanged in late April. Rates for student credit cards last changed in late February, when they declined by 12 basis points.

Business credit cards

Business non-rewards rates were unchanged in late April, while business rewards credit card rates declined by a single basis point, to 15.50 percent.

Despite that negligible overall change, there were actually a total of six rate-tier changes across two business rewards credit card offers in the second half of April. However, those changes included both rate increases and decreases, so overall they virtually cancelled each other out. This suggests that these changes represented an individual credit card company tweaking its tolerance for credit risk rather than any broad trend in the direction of credit card rates.

Good credit vs. average credit

With no changes in the consumer credit card offers tracked by this survey, the spread between the average rate for customers with excellent credit and the average for customers with so-so credit remained at 17 percent. This follows a 17 basis point jump in this average during the first half of the month, so consumers need to be aware that there can be a substantial cost to any deterioration of their credit standing.

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 04/30/13

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