Credit card interest rates move higher, near record levels

By Kate Tomasino

Credit card interest rates rose slightly this week, edging closer to record heights.

The national average annual percentage rate (APR) on new card offers climbed to 14.84 percent, according to the CreditCards.com Weekly Credit Card Rate Report. It's the first such increase in more than a month, and it pushes the national average to its second highest level since CreditCards.com began tracking rates in 2007. The record is 14.85 percent, set in May.

That's a big drop in volatility from this time last year. In the first 25 weeks of 2010, the national average failed to move only twice. It went up 13 times and down 10 times. This newfound stability may be due to banks and issuers finally finding stability in the wake of the Credit CARD Act -- many of the law's landmark reforms took effect in February 2010, sending issuers scrambling to adjust their businesses to the changes -- and a recovering economy.

This week, the national average increase was spurred by Barclays, which dropped one of the available APR ranges on one of its airline rewards cards. The bank had offered the U.S. Airways Premier World MasterCard with multiple ranges -- either 15.24 percent to 24.99 percent or 15.99 percent to 24.99 percent, depending on where the offer was viewed.

However, Barclays spokesman Kevin Sullivan said only the latter range is now being offered with the card. That means that the lowest available APR for the card has changed from 15.24 percent to 15.99 percent. Since we use the lowest rate in our average calculations, the change pushed the overall national average upward.

Some rates aren't changing, however. The Federal Reserve announced Wednesday that it will leave its benchmark lending rate unchanged. That matters to cardholders because if the federal funds rate increases, the prime rate increases by the same amount. And when the prime rate increases, the APRs on variable rate credit cards go up by the same amount, almost immediately. (Nearly all U.S. credit cards are variable rate cards, and nearly all of those have rates tied to prime.) However, if the Fed chooses to leave rates unchanged -- as it has done in every meeting since 2008 -- that means that only a major mistake, such as being 60 days late with a payment, can lead to a borrower seeing a sudden APR increase. Otherwise, the Credit CARD Act requires issuers give a cardholder at least 45 days' notice before implementing a rate increase. 

See related: An interactive guide to the Credit CARD Act

Published: June 22, 2011

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