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Capital One's rate hikes send credit card interest rates higher

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Interest rates on new credit card offers rose this week, according to the CreditCards.com Weekly Credit Card Rate Report, spurred by rate increases from Capital One.

The national average annual percentage rate (APR) on new card offers reached 14.23 percent, following offer adjustments by several lenders. The bulk of those moves came from Capital One, which raised rates on three of its cards. 

CreditCards.com's Weekly Rate Report
  Avg. APR Last week 6 months ago
National average 14.23%
14.17%
12.71%
Low interest 12.04%
12.04% 11.65%
Cash back  12.63%
12.63%
12.08%
Balance transfer 12.88%
12.80%
12.13%
Business 12.96%
12.96%
9.74%
Student 13.96%
13.87%
14.89%
Reward  14.34%
14.33%
13.29%
Airline
14.46%
14.43%
13.60%
Instant approval 15.99%
15.99%
13.32%
Bad credit 19.75%
19.50%
13.74%
Methodology: The national average credit card APR is comprised of 95 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.)
Source: CreditCards.com
Updated: 6-2-2010

Capital One boosted APRs on new offers for three cards -- the Standard Platinum, Classic Platinum for Young Adults and No Hassle Cash Rewards for average credit -- each by roughly 2 percentage points. Other issuers were also active: Discover lowered the bottom end of its student card's APR range, and Cabela's slightly increased the top end of its Visa card's APR range.   

Capital One had not yet provided comment at the time this article was published and Discover said it doesn't comment on rate strategies. Cabela's, however, said its APR changed due to movement in the card's index -- the London Interbank Offered Rate (LIBOR) -- the British equivalent of the U.S. prime rate. Most cards in the United States are pegged to prime.

The increasing cost of credit
These moves mean credit just keeps getting pricier. A typical cardholder who borrowed $5,000 on a credit card today and consistently paid $150 per month at today's average interest rate would have to pay $6,401 to pay off the debt. That's $200 more than would have been required six months earlier. (Calculator: How long will it take to pay off your credit card balance?)

But plastic isn't only causing added pain for cardholders. In its most recent quarterly financial results, Cap One acknowledged that its credit card business has proved challenging, even as other parts of its business improve. "Total charge-offs in the quarter fell as improvements in the company's commercial, auto finance and retail banking businesses more than offset a slight increase in domestic [credit] card charge-off," the issuer said in a press release, referring to those unpaid debts it has given up on collecting. 

See related: Credit card lending standards keep tightening, Fed report says, Credit card reform arrives in the form of the Credit CARD Act, Calculator: How long will it take to pay off your credit card balance?Credit card rates: interactive graphic on APR changes

Published: June 2, 2010


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