Credit card interest rates push higher again
If you've experienced a sudden increase in your credit card's annual percentage rate, new data confirms that you aren't alone.
|CreditCards.com's weekly rate chart|
|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.)|
This week, APRs on new credit card offers inched up to 12.64 percent, according to the CreditCards.com Weekly Credit Card Rate Report. The latest increase continues a trend of rising interest rates this year, as new reports show banks continue to use rate hikes and other term changes to increase revenues ahead of a new card law.
A report released Wednesday by the nonprofit Pew Charitable Trusts found that none of the cards offered online by the leading U.S. banks would meet the requirements of the Credit CARD Act set to take effect in February. "One hundred percent of credit cards from the largest 12 banks used practices deemed 'unfair or deceptive' under Federal Reserve guidelines," Pew says.Those soon-to-be-banned practices include: hiking rates at any time on existing cardholders, triggering penalty pricing with just one or two late payments per year and applying payments to lower interest balances before higher interest ones.
That doesn't surprise credit counselors, who have been hearing firsthand reports from cardholders. "People who have fairly good credit scores are seeing a rate increase, and it doesn't seem to be related to their credit situations," says Sandy Shore, senior counselor with debt management firm Novadebt in Freehold, N.J.
The latest findings from Pew show just how steep and widespread those APR increases have been. According to the Pew report, advertised APRs rose an average 20 percent during the first half of 2009. It also reported that 99.7 percent of cards allowed issuers to raise APRs on existing cardholders at any time, up from 93 percent in December.
Even as the February deadline for compliance with the CARD Act approaches, banks haven't stopped hiking APRs. Data released Thursday by Comperemedia -- which tracks credit card direct mailings -- shows that the mean purchase APR on variable rate card offers has reached 12.53 percent in the third quarter. That's up from 12.06 percent in the second quarter and 11.8 percent at the end of last year.
According to CreditCards.com data, the national average APR has advanced to 12.64 percent from 12.59 percent six months earlier.
"We're seeing [APRs] edge up, particularly for cards that don't have a fee," says Andrew Davidson, senior vice president with Comperemedia in New York. Davidson explains that banks are experimenting with higher rates on some cards and new fees on others. "The CARD Act will be eating into revenues and so issuers are looking at any legitimate means possible" to offset the loss of revenue, he says.
He notes that credit cards that don't charge an annual fee are seeing their APRs increase, while cards with a fee have seen rates come down. "Just saying card rates are going up isn't the full picture," Davidson says.
Those cards that charge a fee -- typically rewards cards -- tend to charge higher APRs to start with. They now account for a larger portion of new card mailings: Davidson says that offers for fee-based reward cards totaled 26 percent of mailings, an increase from both 21 percent in the second quarter and 13 percent one year ago. That has helped boost the average APR for offers overall. "Issuers have become more cautious and they're putting out more premium offers. That's a reflection of this trend," he says.
Banks have good reason to be cautious. As layoffs continue, many consumers are finding it increasingly difficult to make credit card payments. The latest data from Fitch Ratings shows that card payments more than 60 days late rose to 4.22 percent in September.
Shore says that examining the credit reports of prime borrowers suggests that the economy is taking its toll -- including evidence of cardholders with rising levels of debt compared to their available credit -- even if the cardholder's credit score doesn't yet reflect that reality. "Somebody can have a high credit score, but there are signs of stress," she says.
Shore says that as banks introduce annual fees, cardholders could respond by closing those accounts rather than making an annual payment. "People who have very good credit are going to reduce the number of credit cards they have," she says. With fewer open accounts, if they decide to make a large purchase on plastic, those borrowers could unwittingly bump up their utilization ratios -- and damage their credit scores.
Her warning to those cardholders is one all borrowers should obey in this economy: "Now you have to be really careful."
See related: A comprehensive guide to the Credit CARD Act of 2009
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