Credit card rate offer 'ranges' make comparison shopping tough
More card offers come with multiple APRs, leaving applicants confused
Having trouble figuring out what your interest rate is going to be on a new card offer? You're not alone.
Credit card offers that advertise a range of possible annual percentage rates (APRs), rather than one flat rate, have grown increasingly common in recent years, according to the market research firm Ipsos, which tracks credit card mailings. That's especially true online, where consumers who shop around for credit are more likely to find several different APRs on any given card.
Some of those offers may tout just a handful of possible rates, depending on your creditworthiness. However, a growing number of Web-based credit card offers now feature APR ranges as wide as 10 percentage points or more, according to CreditCards.com research, making it hard to tell what interest rate you'll actually have to pay until you are approved for the card. If you don't like the card's rate, you can always decline to use it, but you've already paid a price: Each application causes a minor hit on your credit score.
"It makes it impossible for meaningful shopping to take place by the consumer," says Josh Frank, senior researcher at the Center for Responsible Lending. "They have no idea what rate they'll be getting."
offers tough to navigate
The likelihood that you'll be confronted with a varying APRs depends on the issuer you're dealing with and the type of offer you receive. Most credit card offers that are mailed directly to consumers' mailboxes, for example, still feature just a flat APR, says Roy Persson, director of competitive tracking services at Ipsos. Mail offers can be customized more easily than Web offers, since issuers can buy postal addresses for people in specific credit ranges.
Still, even in the mail, "the number of offers with APR ranges has indeed been climbing slowly since the Great Recession," he says. Offers with APR ranges now total about 30 percent of all offers sent through the mail.
Card offers marketed online are especially likely to disclose a wider range of APRs, according to CreditCards.com research. Among the largest credit card issuers, for example, all seven of the biggest issuers publish on their websites a range of possible interest rates for numerous credit cards.
Some of those issuers, such as Capital One and Chase, market just a small number of cards boasting wide APR offerings. "We provide a range of APRs on credit card offers for people with excellent credit to accommodate the broad range of consumers who are interested in our products," wrote Capital One spokeswoman Sukhi Sahni in an email. "Our products for people who are building or rebuilding their credit have a single APR," says Sahni.
Other issuers, such as Bank of America, Wells Fargo and Discover, advertise ranges of 10 percentage points or more on the majority of cards they offer on the Web.
What's the point of even listing the rate if there's going to be such a wide range? This is very unhelpful to consumers because we need to have some idea if this offer is a good idea, and there's no way to know if there's a 10-point range that we're trying to gauge.
|-- Ruth Susswein
The Wells Fargo Cash Back card, for example, currently features an APR range of 12.15 percent to 25.99 percent -- nearly a 14-point spread. The Discover "it" card features an APR range of 10.99 percent to 22.99 percent -- a 12-point spread. The BankAmericard Cash Rewards card features an APR range of 12.99 percent to 22.99 percent -- a 10-point spread.
Those ranges are not to be confused with variable interest rates. For instance, if you're approved for a card with an APR of 15 percent, that's your starting point. If the Federal Reserve hikes interest rates, your APR should rise proportionately.
Consumer advocates say the extra wide APR ranges make the disclosures practically meaningless. "What's the point of even listing the rate if there's going to be such a wide range?" says Ruth Susswein, deputy director of national priorities for the Consumer Action advocacy group. "This is very unhelpful to consumers because we need to have some idea if this offer is a good idea, and there's no way to know if there's a 10-point range that we're trying to gauge."
One advantage to the wide ranges is that issuers may send the same marketing material to a larger number of consumers with different credit scores.
"They may be broadening the group so that they're including in their target audience a broader range of people," says Nessa Feddis, senior counsel for the American Bankers Association.
Wider ranges more common
Regardless of why issuers are doing it, the number of card offers that advertise extra-wide ranges to online shoppers has grown significantly in the past year, according to CreditCards.com data on new card offers.
For example, among the 100 cards that CreditCards.com tracks each week:
- 31 cards now feature APR ranges as wide as 10 percentage points or more -- up from 20 cards a year ago.
- 16 cards now feature a 7-point to 9-point difference between offered rates.
- 13 feature a 4-point to 6-point difference.
- The median APR range is 10 percentage points.
Why ranges matter
As with any loan charging an interest rate, just a few percentage points makes the difference between a good credit card and a lousy one. A swing of 10 percentage points is huge: A card with a 9 percent APR is a good deal in today's market, reserved for the most creditworthy. Swing that rate 10 percentage points higher, to a 19 percent APR, and it's become a bad deal, usually offered to customers who have had difficulty paying bills on time.
The wider APR ranges may be a sign that issuers are actively courting consumers with lower credit scores again, after shutting them out during the recession. "I think you're finally seeing credit loosen up a little bit from the 2008 downturn," says Tom Johnson, vice president of product development at Zoot Enterprises, which helps card issuers evaluate new applicants.
As issuers compete for fresh business in a crowded market, some are beginning to look beyond prime cardholders with perfect credit. These days, "the prime space is so packed with offers, if you want to grow, you're going to have to go outside of that prime group," says Johnson.
That may be why some issuers, such as Bank of America and Discover, have deliberately widened the range of possible APRs in the past year. (Both issuers declined to comment on their pricing strategies. But each recently changed most of their card offers by raising the cards' maximum available rates and leaving the lowest rates alone.)
Johnson says that as long as the economy continues to improve, issuers will likely keep APR ranges extra wide in order to accommodate more cardholders. "I think you'll see wider ranges as long as banks stay stable," says Zoot Enterprise's Johnson.
your options by planning ahead
So what's a consumer to do?
First, pull your credit report, says the ABA's Feddis. That way, you can see where your credit history stands. You can get a free copy of your credit report from each of the three credit reporting agencies once per year at AnnualCreditReport.com. To get your credit score, you can pay about $20 for a FICO score from myFICO.com.
Then, try to make an educated guess to narrow a card's range, says Consumer Action's Susswein. For example, if you've missed a credit card payment in the past, you're likely to receive an APR that's closer to a card's maximum possible rate.
"Upon applying, a customer is offered an APR that is commensurate with their credit score. So the higher the score, the lower the APR," wrote Capital One's Sukhi Sahni in an email.
Even if your score is solid, however, don't assume that you'll automatically get the lowest rate. Issuers often look at other factors, such as your income, when considering what kind of APR you should get. "We look at individual creditworthiness (ability, stability and willingness to pay) when setting rates," wrote Bank of America spokeswoman Betty Riess in an email.
Don't be overly optimistic when making educated guesses, adds the Center Responsible Lending's Frank. Research shows that we're biased in the way that we view information and that can color how we react to new card offers, he says.
To guard against this, you may want to take a second look at the card with a narrower range, he says. "Even if it doesn't look as good, you have more certainty and what you might get might be better."
You may also be able to get more certainty on an offer if you take advantage of an issuer's price guarantee tool, such as Capital One's online prequalification tool, according to Capital One's Sahni.
Once you've made an educated guess about what rate you're likely to receive, go online and see if you can find a better deal, says Frank. "There are offers out there that are more straightforward," he says. You just have to find them.
Finally, if you apply for a card and receive a higher APR than you expect, don't be afraid to turn down the offer and close the card, he says. "Try again," says Frank. "If you don't like what you get, don't take the offer, don't use the credit card."
Your credit score will take a temporary hit each time a lender pulls your credit report and if you cancel the card, but the impact will be small and should heal relatively quickly.
Updated: July 9, 2013
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