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Credit card rates leap up for consumers

 

September 15, 2011

Current averages:

  • Average consumer credit card rate, overall market: 16.80 percent.
  • Average consumer non-rewards credit card rate: 14.88 percent.
  • Average consumer rewards credit card rate: 17.63 percent.
  • Average business non-rewards credit card rate: 14.47 percent.
  • Average business rewards credit card rate: 16.05 percent.
  • Average student credit card rate: 16.59 percent.

Overall Market

The US bank prime rate remained unchanged in the first half of September, at 3.25 percent. Changes in the prime rate can trigger changes in credit card rates, since some cards base their rates on a premium added to the prime rate. However, there are other factors that can cause a change in credit card rates even without a change in the prime rate, and that's what happened over the last couple of weeks.

Consumer credit card rates rose in both the rewards and non-rewards categories. These increases came against a backdrop of falling bond yields. Is it a contradiction to have credit card rates going one way while bond yields are going the other? Not really. Both trends reflect growing concern about the US economy, and in particular, about the central piece of that economy, the consumer sector.

Bond yields often fall in a weakening economy, both because of a flight to safety (i.e., higher demand for bonds drives yields down) and in anticipation of less demand for capital. Under the same conditions, credit card rates may rise, because the weakening economy raises new doubts about the creditworthiness of US consumers.

So far, business and student credit card offers have not been affected by the rising trend in consumer credit card rates. Rates for both business and student credit cards were unchanged in the first half of September.

Consumer credit card rates

Non-rewards consumer credit card rates rose by 0.16 percent, to reach an average of 14.88 percent, but the real action was in consumer rewards credit cards. These rates rose by 0.33 percent to reach an average of 17.63 percent. As a result of these changes, the overall average for consumer credit cards was up by 0.27 percent, reaching 16.80 percent.

Because rates for rewards credit cards rose by more than those for non-rewards credit cards, the spread between the rates in these two categories increased, continuing a trend that has been in place all year. The difference between rewards and non-rewards credit card rates stood at 2.30 percent when 2011 began. It rose to 2.39 percent by mid-year, and since then has soared to 2.75 percent.

If this trend is affecting your rewards credit cards, this might be a good time to shop for more competitive rates, or else re-evaluate whether the financial value of the rewards you are getting is worth any extra interest you may be paying.

Business credit card rates

Neither rewards business credit cards or non-rewards business credit cards saw any change in rates during the first half of September. As a result, the average for rewards business credit card rates remained at 16.05 percent, and the average for non-rewards business credit cards remained at 14.47 percent.

Seeing business credit cards hold steady while consumer credit card rates rose is consistent with a widespread perception that businesses generally are in better financial condition than consumers. However, few businesses can remain in good shape for long if consumer finances don't improve.

Student credit card rates

After falling slightly in the last survey, student credit cards held steady in early September, at an average rate of 16.59 percent.

Good credit vs. average credit

The difference in credit card rates for people with strong credit and those for people with average credit shrank slightly, to 4.09 percent (it had been 4.11 percent in the last survey). More significantly though, credit card rates rose for both groups - consumers with good credit, and those with average credit.

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 American Express, Capital One, Chase, Citi, Discover, MasterCard, and Visa. 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 09/15/11 (Modified 05/14/14)


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