The average annual percentage rate (APR) on new credit card offers stalled at 14.65 percent again this week, marking the fifth straight week APRs have shown no movement.
|CreditCards.com’s Weekly Rate Report|
|Avg. APR||Last week||6 months ago|
|Methodology: The national average credit card APR is comprised of about 100 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.)|
A combination of increased regulatory certainty, a resurgent economy and a stabilizing job market may account for the rigid APRs, experts say. Before this stretch, rates had never gone unchanged for more than two straight weeks since CreditCards.com began tracking them in 2007. But this lack of movement is a welcome sign for consumers, experts say.
Uncertainty over consequences of the Credit CARD Act of 2009 has largely subsided, and issuers are no longer scrambling to interpret and comply with regulations. When the Credit CARD Act was new, it pushed banks to provide credit only to the most creditworthy borrowers while they determined the full implications of the law and changed their business models to conform to it, said Cristian deRitis, economist at Moody’s Analytics said.
Now that banks have eliminated riskier clients, they are seeing profits. At the same time, the economy and job market continue to improve and charge-offs — those unpaid debts that a bank writes off as uncollectable — keep decreasing. deRitis says that’s led banks to begin focusing on gaining market share, rather than shedding iffy customers. The result: Consumers could expect APRs to remain mostly static for the next few months, experts say.
More competition means lower rates
This newfound stability and competition among creditors could mean a good opportunity for consumers considering a new card, Michael Sullivan, director of education at Take Charge America, a Phoenix-based nonprofit consumer credit counseling company.
“Stability is a good thing, and I would interpret it as a sign that creditors are competing for a smaller, more creditworthy group of customers and cannot raise APRs and stay competitive,” Sullivan said. “That implies that it would be a good time for consumers with good to excellent credit to seek lower rates by playing the creditors off one another.”
Sullivan also recommends calling each issuer to seek a lower rate until you’re sure you find the lowest one available.
Stability won’t last forever
Experts agree that APRs have been consistent recently, but deRitis predicts they will rise later this year, as the Federal Reserve begins raising short-term interest rates. Such a move by the Fed is far from a sure thing — the Fed has not changed its benchmark federal funds rate in more than two years, and many experts believe that they won’t move it in 2011 as the economy continues to expand — but deRitis says the possibility is something that consumers should consider. “Consumers need to build these rising rates into their calculations to ensure that they can afford higher interest payments,” deRitis said.
Here’s why :
- Most American credit cards are variable rate credit cards.
- Most of those cards are tied to the prime rate. When the prime rate changes, variable rate credit card APRs will, too.
- The prime rate is 3 percentage points above the federal funds rate. When the federal funds rate increases, it sends the prime rate higher. That, in turn, leads to an abrupt increase in most credit card APRs.
But even if the Fed leaves rates alone, consumers need to understand that APRs can increase with adequate notice and payments can become more cumbersome, Sullivan warned. Under the Credit CARD Act of 2009, issuers must give cardholders 45 days’ notice for APR changes, except in a few specific cases, including when the changes are prompted by Fed rate movement or by major mistakes by cardholders.
See related:8 things you must know about credit card debt