June 30, 2011

Current averages

• Average consumer credit card rate, overall market: 16.76 percent
• Average consumer non-rewards credit card rate: 15.09 percent
• Average consumer rewards credit card rate: 17.48 percent
• Average business non-rewards credit card rate: 14.62 percent
• Average business rewards credit card rate: 16.05 percent
• Average student credit card rate: 16.67 percent

The U.S. prime lending rate is currently 3.25 percent. This rate is frequently used as the basis for credit card interest rates.

The most significant change in the above category averages was the drop in business credit card rates. Rates for business rewards credit cards dropped 16 basis points to 16.05 percent. (Business non-rewards credit card rates fell also, but that can be partly attributed to a change in the selection of cards surveyed.) This break for business customers is consistent with the impression that the business sector is faring much better than individuals in the current economic recovery.

Interest rates on credit cards will move up and down over time along with the general trend in interest rates, but they also move in reaction to assessments of the general risk level of credit card obligations. When credit card companies are concerned about defaults, they will tend to raise rates to compensate for this risk. If they are more comfortable that credit card payments will be made, they will lower rates to capture more of a healthy market.

Rate changes are market-driven

Lately, there has been no meaningful change in the overall level for interest rates. In fact, the prime rate, to which many credit card rates are pegged, has been at 3.25 percent since the beginning of 2009. Thus, any changes since then have been reflective of changing confidence levels among credit card companies. This is driven largely by the economic environment, though in the case of the past couple years regulatory changes have also played a hand.

As a matter of confidence, it is significant that it was business credit cards were the ones to get the latest break in credit card rates, and that their rates are lower than their consumer card counterparts. The business sector has shown strength, even though that strength has been slow to translate into employment growth. The lingering question is how long businesses can show strength before some of that strength is felt by their customers and employees.

Consumer credit card rates

Consumer credit card offers remained unchanged, in both the rewards and non-rewards categories.

With consumer credit card rates showing little change all year, the onus is on individual consumers who want better rates to shop actively to find more attractive credit card offers. Even among offers for consumers with excellent credit, rates on credit cards surveyed differed by as much as 7.99 percent in the non-rewards category, and by as much as 6.91 percent in the rewards category.

The message here is that unless your credit card rate is well below the average for its category, there is a good chance you could do better by shopping around.

Business credit card rates

Rates for non-rewards business credit cards dropped 45 basis points to 14.62 percent, but this was primarily due to an updating of the constituents within this category. The true action was in rewards business credit card offers, where the average rate dropped 16 basis points to 16.05 percent.

Business rewards rates are now at the cheapest level of the year relative to consumer rewards cards. This may well be saying something about the confidence credit card companies have in their business customers compared to their individual customers.

Student credit card rates

The average rate for student credit cards remained unchanged at 16.67 percent. This was the second consecutive month with no change in student credit card rates, after this had been the most changeable category early in the year.

Good credit vs. average credit

With no change in consumer credit card offers during the latter half of June, the differential between rates for consumers with good credit and those with average credit remained unchanged, at 4.11 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 institutions surveyed include Bank of America, HSBC, Citi, American Express, and Capital One. 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 06/30/11