Rate survey: Moves by Chase, Best Buy push card rates higher
By Kelly Dilworth | Published: March 7, 2012
Credit card interest rates jumped this week for the first time in nearly three months, according to the CreditCards.com Weekly Credit Card Rate Report.
|CreditCards.com's Weekly Rate Report|
|Avg. APR||Last week||6 months ago|
|Methodology: The national average credit card APR is comprised of 100 of the most popular credit cards in the country, including cards from dozens of leading U.S. issuers and representing every card category listed above. (Introductory, or teaser, rates are not included in the calculation.)|
|Updated: March 7, 2012|
The national average annual percentage rate (APR) on new credit card offers rose to 14.97 percent Wednesday, breaking an 11-week streak in which interest rates either declined or stayed the same. Average interest rates rose by a full tenth of a percentage point -- pushing the national average to its highest level since early January.
As a result, new cardholders can expect to pay significantly more on their balances. A tenth of a percentage point may not sound like much, but it can make a real difference to a cardholder's bottom-line. For example, if a cardholder borrows $5,000 on a credit card today and consistently pays $100 per month at 14.97 percent interest, they will have to pay a whopping $2,885 in interest to pay off the loan. That's $37 more than they would have had to pay the previous week, when the national average APR was 14.87 percent. (Calculator: How long will it take to pay off your credit card balance?)
Moves by Chase, Best Buy and Capital One spur this week's rate increase
JP Morgan Chase led the week's rate increase by raising the APRs on two of its rewards cards. The bank eliminated the Disney Rewards Visa card's APR range of 13.24 percent to 16.24 percent and replaced it with a flat rate of 14.24 percent for all applicants. This means all Disney Rewards card approved applicants will be offered the same rate, regardless of their credit score.
Chase also raised the United Mileage Plus Explorer card's APR by one percentage point to 15.24 percent.
Chase spokesman Steve O'Halloran declined to comment on the most recent interest rate changes, but he said prospective cardholders have a variety of cards to choose from. "Chase offers a number of cards with different rates and benefits, which is why we encourage customers to choose the card that is best for them," O'Halloran said.
Chase also replaced the bank's Continental Airlines One Pass Plus card this week with the United Mileage Plus card after Continental Airlines merged with United Airlines. The only change current cardholders will see is a replacement card with a new name.
"As a result of the United and Continental merger this past weekend, the card will now be referred to as the United MileagePlus Explorer Card," said Chase spokesman Rob Tacey. The new cards should arrive no later than September 2012. "This replacement card will have the same account number, annual fee and benefits along with a new expiration date. In the meantime, card members can keep using the current card as they always have."
Best Buy also helped push the national average higher this week by raising the APR on its Reward Zone Platinum MasterCard to 21.24 percent.
Capital One was also active, increasing the range for the Capital One Venture Rewards card. The bank raised the bottom end of the APR range on the Venture Rewards card from 11.9 percent to 13.9 percent. The bank also raised the card's top end of the APR range from 19.9 percent to 20.9 percent. However, since only the low end of APR ranges is factored into our average calculations, that move didn't impact the national average APR.
Experts say that banks are starting to reach out to cardholders with lower credit scores, and that could also be pushing up average interest rates. During the depths of the recession, many credit card issuers closed their doors on cardholders with blemished credit. Instead, they restricted offers to people with good credit, and had to offer good rates to attract them. As the economy improves, banks are reopening their doors to people with blemished credit who were shut out before -- bit at higher rates to compensate for their higher risk of default.
Think of the universe of people being offered credit cards as a risk pool, says David Nice, an associate economist at Mesirow Financial. There are more people in the pool now than three years ago, but on average, they're riskier customers. As a result, if they are reaching out to those who were previously denied access to credit, card issuers "would be reaching out to more people, and so it could pull up the average interest rate," says Nice.