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Consumer credit card rates rise — is inflation the culprit?

Consumer credit card rates rise — is inflation the culprit?

August 31, 2014

Current averages:

  • Average consumer credit card rate, overall market: 17.15 percent
  • Average consumer non-rewards credit card rate: 15.48 percent
  • Average consumer rewards credit card rate: 17.87 percent
  • Average student credit card rate: 17.56 percent
  • Average business non-rewards credit card rate: 14.99 percent
  • Average business rewards credit card rate: 15.42 percent

The U.S. bank prime rate did not change over the last two weeks of August, remaining at 3.25 percent.

Business and student credit card rates were unchanged since the last survey, but there was a change in one of the credit card offers for consumers. One of the rewards credit cards tracked by this survey raised its minimum rate tier, meaning that even customers with excellent credit histories would experience higher rates if they chose this particular card.

The bigger-picture meaning of this change might be even more important to watch. This time around, just one credit card changed its rates, and that was the first change to consumer credit cards since early May. So, this is far from a trend, but the reason it bears watching is that it might be a hint to how credit card companies are reacting to recent inflation rates.

The reason to suspect inflation is that the change occurred in one of the lower rate tiers that are offered to customers with excellent credit histories. This suggests that concern over creditworthiness was not the issue, but instead the measure was taken in anticipation of interest rates generally rising. A strong reason to believe that might happen is because inflation flared up a little in the second quarter of this year.

In fact, inflation rates for March, April, May and June were all above the general trend for the past year. These higher inflation rates did subside in July, but that was largely a function of falling gasoline and other energy prices. With tensions continuing to heat up in oil and gas producing parts of the world, falling energy prices may not be a reliable factor going forward.

Therefore, inflation will remain a key indicator to watch for clues as to the upcoming direction of credit card rates. As this plays out, consumers should keep in mind that credit card companies react to these economic developments at different times and in different ways, so if the environment becomes more dynamic it will be more important than ever to shop around for credit card rates.

Consumer credit cards

While consumer non-rewards credit card rates held steady, the average rate on rewards credit cards rose by 4 basis points, to 17.87 percent. This widened the spread between average rates for rewards and non-rewards cards to 2.39 percent.

Though this may seem a slight change, the widening of this spread is a good reminder that there is generally a cost to rewards programs in the form of higher interest rates. When choosing between rewards and non-rewards cards, consumers need to assess whether the economic value of the rewards program exceeds the potential extra cost of a higher interest rate. This depends largely on the consumer’s payment habits, and the size of any balance typically carried over from month to month.

Student credit cards

Student credit card rates were unchanged since the last survey.

Business credit cards

Business credit card rates were unchanged since the last survey.

Excellent credit vs. average credit

Credit card offers have different rate tiers, with the lowest interest rates available to customers with excellent credit histories, while the higher tiers are assigned to customers with average or below-average credit. The change in consumer credit card rates that occurred in the second half of August affected one of the lower interest rate tiers, and thus the spread between the typical rates for excellent-credit customers and average customers narrowed by 3 basis points, to 3.98 percent.

In total, IndexCreditCards.com surveys information from nearly 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.

Disclaimer:The information in this article is believed to be accurate as of the date it was written. Please keep in mind that credit card offers change frequently. Therefore, we cannot guarantee the accuracy of the information in this article. Reasonable efforts are made to maintain accurate information. See the online credit card application for full terms and conditions on offers and rewards. Please verify all terms and conditions of any credit card prior to applying.

This content is not provided by any company mentioned in this article. Any opinions, analyses, reviews or recommendations expressed here are those of the author’s alone, and have not been reviewed, approved or otherwise endorsed by any such company. CardRatings.com does not review every company or every offer available on the market.