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Credit card interest rates end record run of declines

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Interest rates on new credit card offers rose this week, according to the CreditCards.com Weekly Credit Card Rate Report, ending a record string of declines.

CreditCards.com's Weekly Rate Report
  Avg. APR Last week 6 months ago
National average 14.17%
14.10%
12.68%
Low interest 12.04%
11.97% 11.65%
Cash back  12.63%
12.57%
12.08%
Balance transfer 12.80%
12.75%
12.07%
Business 12.96%
12.96%
9.49%
Student 13.87%
13.77%
14.89%
Reward  14.33%
14.29%
13.29%
Airline
14.43%
14.43%
13.60%
Instant approval 15.99%
15.99%
13.32%
Bad credit 19.50%
18.87%
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: 5-19-2010

The national average annual percentage rate (APR) on new card offers rebounded to 14.17 percent as several major banks adjusted their card offers, including Wells Fargo, which increased rates on four of its cards. This snaps a streak of five straight drops in the national average, the longest such run since tracking began in 2007. 

Wells Fargo said its rate hikes were part of the bank's routine adjustments. "As a normal course of business, Wells Fargo evaluates it pricing and adjusts it based on market conditions," says Lisa Westermann, the bank's assistant vice president of public relations.

Well below record levels
Despite the latest advance in overall APRs, interest rates still have a long way to go before they challenge record highs established only last month. On April 7, APRs reached a peak of 14.70 percent.  

Based on current rates, 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 $6,392 to pay off the debt. That's $195 more than would have been required six months earlier. (Calculator: How long will it take to pay off your credit card balance?)

Banks continue to make moves
Cardholders with high credit scores have been enjoying lower rates as issuers work to keep them from leaving for other banks. CreditCards.com data has shown in recent weeks that a number of banks have reduced low APRs offered to prime borrowers or changed from offering a single APR to a wide range that allows banks to offer different APRs to different types of customers.

Experts say that many banks have turned their focus to boosting APRs for the bulk of their cardholders.  

"Now that they've restructured pricing to maintain their best customers, they're repricing on everybody else," says Tony Plath, professor of finance at the University of North Carolina at Charlotte.

Even if credit's not sparkling, you still may be able to get a better rate. Experts say borrowers with multiple accounts at a single bank -- such as a total of more than five credit cards, mortgages and other loans, for example  -- should also enjoy lower APRs. "The bank is trying to cement relationships with its best customers, and its best customers are those that have several accounts with a bank," Plath says.  

For other borrowers, however, APRs will continue to increase as banks respond to challenging conditions, including high default rates and pending Wall Street reform legislation. That legislation, currently under debate in the U.S. Senate, would make it tougher for banks based in states with less stringent lending restrictions to charge higher APRs outside that state.

In Plath's view, those banking challenges mean consumers will find it more difficult -- and more expensive -- to borrow on credit cards. "I think rates are going to continue to rise over the course of the next 12 months," he says. 

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: May 19, 2010


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