Target's moves send credit card interest rates to 3rd straight decline
Credit card interest rates fell again, according to the CreditCards.com Weekly Credit Card Rate Report, spurred by Target's recent move to eliminate its Visa credit card.
|CreditCards.com's Weekly Rate Report|
|Avg. APR||Last week||6 months ago|
|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.)|
The retail giant announced it would no longer offer the card, focusing instead on its store-branded card. The removal of Target's discontinued card -- which carried a high annual percentage rate (APR) -- from our database helped send the national average down for the third straight week.
It's the first time since early January that the average has dropped three weeks in a row. Since tracking began in 2007, APRs have never fallen for four straight weeks.
Breaking a trend
The recent interest rate declines represent a break from a prior tightening of lending standards. For months, banks raised rates, cut credit limits and shut down accounts, with card issuers saying the moves stemmed from a combination of the weak economy and the Credit CARD Act, which curbs rate increases on existing plastic but doesn't restrict APRs for new offers.
Many cards have also been discontinued during that time, as issuers focus closely on how to maximize profits.
In its case, Target said it will no longer offer its co-branded Visa credit card, which carried an APR of 23.24 percent, to new cardholders. The major retailer will now just issue its store branded card product, which can only be used at Target stores and on its website. Existing Visa cardholders, however, will continue to be serviced by Target. A company spokesman said the decision was based on higher customer spending at Target stores using the proprietary card. "Tests and guest research shows guests prefer the Target card -- and guests with the target card spend more at Target than similar guests with the Target Visa," said spokesman Eric Hausman. Target is the third-biggest issuer of Visa credit cards.
Other lenders also made changes that pushed the national average APR lower. Subprime issuer First Premier dropped the rate on its Centennial MasterCard for borrowers with poor credit from 23.9 percent to 19.9 percent. First Premier didn't respond to a request for comment.
Despite the recent APR declines, the cost of carrying a balance is still up from last year. For example, 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 $6,403 to pay off the debt. That's $211 more than would have been required six months earlier. (Calculator: How long will it take to pay off your credit card balance?)
The higher cost of borrowing got a nod today from the Federal Reserve. In a statement accompanying its decision to leave a key lending rate unchanged, the Fed noted that alongside high unemployment, limited earnings gains and poor housing prices, tight credit is also helping to keep consumer spending in check. The Fed's decision means that -- barring any errors by borrowers -- the bulk of cardholders shouldn't see APRs increase anytime soon.
See related: Credit card reform arrives in the form of the Credit CARD Act, A guide to the Credit CARD Act of 2009, What's NOT covered by the credit card reform law, 1 in 10 has given up -- or lost -- credit cards in past 8 months, Calculator: How long will it take to pay off your credit card balance?, Federal Reserve leaves interest rates unchanged again, Credit card rates: interactive graphic on APR changes
Published: April 28, 2010
- Applications dip, credit market shows signs of cooling off – The market for consumer loans, including credit cards, pulled back in a February survey of consumers ...
- Online and mobile banking statistics – Bank branches aren't a thing of the past yet, but that could be the way they're headed now that consumers can deposit checks, check balances and even open accounts via computer or smartphone ...
- Fed: Card balances fell $3.8 billion in January – Credit card balances fell in January, according to the Federal Reserve ...