Credit card interest rates drop once again

Average cardholder shouldn't expect much relief, though

By Jeremy M. Simon

Interest rates on new credit card offers fell again this week, according to the CreditCards.com Weekly Credit Card Rate Report, but the typical borrower may not benefit.

Annual percentage rates (APRs) fell for the third straight week, dropping the national average interest rate on new credit card offers to 12.87 percent, according to the CreditCards.com Weekly Credit Card Rate Report. But card changes to the CreditCards.com database and tighter lending standards mean the recent decline is no guarantee of cheaper borrowing for cardholders.

Here's why: Our average declined, in part, because we replaced a discontinued rewards card with a high flat rate with one that had a wide range of possible APRs. (The swapped cards were similar, in order to make sure the database continues to have a representative sample of the most popular types of cards in the United States.) The top of the new card's range was several points higher than the previous card's flat rate, but the low end was much lower. We calculate our averages using a range's low point, so our average fell.

Of course, in today's economy, most consumers won't get that low APR.  

As banks continue to limit access to credit, some cardholders may see their applications rejected altogether. Others will find themselves with an APR near the high end of an advertised range with little explanation offered.

"Unfortunately, the thing about tiered rate disclosures is there is no way to check to see if you are really getting the rate you deserve," says Linda Sherry, director of national priorities with advocacy group Consumer Action.

Costs going up for borrowers as losses goes up for banks
Although the CreditCards.com national average has come down recently, it's still much more costly to borrow on plastic than it was earlier this year. As banks guard themselves against losses due to high unemployment and increasing regulation, cardholders are paying the price. For example, someone who borrowed $5,000 on a credit card today and consistently paid $150 per month at today's rate would have to pay $6,221 to pay off the debt. That's $106 more than would have been required in June.

Those rising costs don't just signal a challenge for cardholders. Amid high unemployment levels, banks are tightening their standards as they continue to find it difficult to recover money from borrowers. Based on the latest data from Fitch Ratings, late credit card payments reached record levels in December, as charge-offs -- or unpaid card debts banks have given up on collecting -- also climbed higher.

Fitch says that the challenging labor market continues to present problems for borrowers. "As a result, charge-offs will retest their recent highs throughout the first half of 2010," managing director Michael Dean said in the company's press release. 

Such persistently high loan losses for banks mean cardholders are unlikely to get any breaks over the coming months.

See related: Banks continue to tighten credit card lending standards, Fed report says, A guide to the Credit CARD Act of 2009

Published: January 6, 2010

	Three most recent Research, statistics stories: Rate survey: Credit card rates hold steady for 2nd week – The average interest rate on a new credit card offer remained unchanged this week, according to the CreditCards.com Weekly Credit Card Rate Report, though issuers are still tweaking APRs ... Consumer credit card balances keep rising, Fed says – Consumer credit card balances moved higher in December, as more Americans pulled out their cards for the holidays. But experts say that a return to holiday shopping may not be the only reason why consumers saw their balances swell ... Rate survey: Credit card rates hit lowest levels in 5 months – Interest rates on new credit card fell to their lowest levels since August 2011 this week, according to the CreditCards.com Weekly Credit Card Rate Report ...

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