Credit card rates remain high
September 15, 2010
- Average consumer credit card rate, overall market: 16.79%
- Average credit card rate, non-reward consumer cards: 15.22%
- Average reward credit card rate: 17.46%
- Average student credit card rate: 16.23%
- Average business credit card rate (non-reward): 14.47%
- Average business reward credit card rate: 15.74%
Credit card rates were unchanged across the board in the last two weeks, with the overall average consumer credit card rate hovering at 16.79 percent, according to the latest survey by IndexCreditCards.com.
That's a tad below the record high of 16.85 percent set in early June, but still remains more than a full point above the average of 15.39 percent one year ago.
The current average rate for reward credit cards is even higher at 17.46 percent, almost 2 percentage points higher than the average reward rate of 15.87 percent one year ago.
Business and student credit card rates also remained the same in the last two weeks, although they, too, are at least a full percentage point above their year-ago levels. Last year at this time, the average business non-reward credit card rate was 13.37 percent, compared to the current 14.47 percent, and the average business reward credit card rate was 13.83 percent, compared to the current 15.74 percent. The average student credit card rate one year ago was 15.33 percent, compared to today's average of 16.23 percent.
To pinpoint a single average rate for each category, IndexCreditCards.com takes into account all the rates offered for each card. Many issuers offer tiered rates based on consumers' credit ratings. Applicants with the highest credit scores get offered the lowest credit card rates, and those with less-than-perfect credit are offered the higher rates.
The average rate for consumers with excellent credit is 11.17 percent for non-reward cards and 13.68 percent for reward credit cards.
Most rates offered today are variable, which means they rise and fall according to an index, typically the prime rate, which is now at a low 3.25 percent.
There is no cap on how high credit card rates offered to new customers can go, although federal rules that went into effect this year prohibit card issuers from increasing rates on current accounts within the first year and at any time on existing balances. However, they may increase interest rates if a borrower is more than 60 days late on payments. In addition, credit card companies must apply payments over the minimum due to the balance with the highest interest rate first. Interest rates for cash advances, for instance, are typically higher than for purchases.
The new federal rules also limit marketing to college students -- banning issuers from offering freebies to students for filling out applications and requiring co-signers on accounts for young people under 21, unless they can show they have sustainable incomes to pay their credit card bills.
However, none of the new rules applies to business credit cards, although some issuers are voluntarily extending key consumer protections to business customers, such as no interest rate hikes on existing balances.
Meanwhile, a new survey conducted by the Professional Risk Managers' International Association for FICO showed evidence of a growing credit gap for U.S. consumers with lenders projecting credit applications to increase or remain steady while anticipating approval criteria to grow more strict.
Only a quarter of bankers surveyed expect a higher approval rate for credit cards and loans, while 38 percent expect the approval rate for credit applications to fall.
Financial institutions represented in the IndexCreditCards.com survey include American Express, Bank of America, Capital One, Chase, Citi, Discover, HSBC, PNC/National City, Iberia Bank, Simmons National Bank, U.S. Bank, Wells Fargo, and more.
Published 09/15/10 (Modified 05/14/14)