Consumer credit cards raise the incentive for excellent credit
May 31, 2011
- Average consumer credit card rate, overall market: 16.76 percent.
- Average credit card rate, non-reward consumer cards: 15.09 percent.
- Average consumer reward credit card rate: 17.48 percent.
- Average student credit card rate: 16.67 percent.
- Average business credit card rate (non-reward): 14.72 percent.
- Average business reward credit card rate: 16.21 percent.
Apparent changes in the category averages for credit card rates were primarily because the samples for those categories were updated to reflect current product availability. Even though changes to individual credit card offers were few and subtle in the second half of May, there are still conditions that could benefit smart shoppers. In economic terms, markets are considered inefficient if there are significant variances in prices for similar goods and services. The more inefficient a market is, the more an informed buyer stands to benefit.
How inefficient is the credit card market? It varies by segment. Looking at the range of credit card offers within each category, and using offers for customers with excellent credit so as to make apples-to-apples comparisons, the following are differences from highest to lowest credit card rates:
- Consumer non-reward credit card offers: 7.99 percent difference between highest and lowest rate.
- Consumer reward credit card offers: 6.91 percent difference.
- Non-reward business credit card offers: 10.75 percent difference.
- Business reward credit card offers: 5.75 percent difference.
- Student credit card offers: 7.81 percent difference.
One surprise is that the biggest differential is in one of the business categories. Business credit cards might be expected to be the most efficient market, but they are not. In any case, note that there are ample opportunities in every category for smart shoppers to take advantage of rate differences in credit card offers.
Consumer credit card rates
On the surface, consumer non-reward credit card rates appear to have declined, from 15.27 percent to 15.09 percent. However, this was due to an updating of the sample of cards used to compute the average; without this change, consumer non-reward credit card rates would have risen slightly.
There was no change in the consumer reward credit card category, either in terms of the sample used or the average rate.
Business credit card rates
The sample of credit cards used for the business non-rewards category was updated, causing the average for this category to drop from 14.91 percent to 14.72 percent. Otherwise, there would have been no change in this average, and there were no rate changes in the business rewards category.
Student credit card rates
Student credit card offers, which have been the most volatile of all the categories in this report, remained unchanged at 16.67 percent. This is the second consecutive period with no change for this category, meaning that they last changed in late April, when they rose from 16.44 percent to their current level.
Good credit vs. bad credit
Although the overall averages were little changed in late May, the difference between credit card offers for consumers with excellent credit and the average of all credit card offers widened measurably. For the consumer credit card market overall, this difference widened from 4.03 percent to 4.11 percent.
This is reflective of a market where credit card companies still want to be aggressive about building business, but at the same time want to be selective about taking on credit risk. A example of this stance was seen in the change in rates offered by the Wells Fargo Cash Rewards card. The lowest rate for customers with excellent credit dropped by 1 percent; meanwhile the top rate for customers with weaker credit rose by 1 percent. This meant no net change in the category average, but it is indicative of the preference credit card companies have for lower-risk customers right now.
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 credit cards, 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 05/31/11 (Modified 05/14/14)