Average card APR climbs to record 16.47 percent

Kelly Dilworth
Personal finance writer
Specializing in new trends in credit

Interest rates on new credit cards rose Wednesday for the first time in seven weeks, according to the CreditCards.com Weekly Credit Card Rate Report.

The average card APR climbed to a record high of 16.47 percent after the Federal Reserve raised it benchmark interest rate by a quarter of a percent, prompting many card issuers to do the same. When the Federal Reserve increases interest rates, most variable rate cards eventually raise rates by the same amount.  

CreditCards.com reviewed the APRs, annual fees and promotional terms of 100 of the most popular U.S. credit cards and found that 23 cards included in the weekly rate report increased rates this week. Many more are expected to raise rates over the next several weeks as issuers gradually revise their card offers.

All 23 cards that increased rates matched the Federal Reserve’s rate hike by increasing APRs by 0.25 percent.

None of the cards advertised new promotions.

One card issuer, Capital One, also advertised new, lower rates on a handful of subprime credit cards for the second consecutive week, but the rates appeared to be test offers and were only shown to select computer users. As a result, CreditCards.com didn’t include the changes in its calculation. Occasionally, credit card issuers float new offers to select applicants or show varying rates and promotional offers to different computer users.

Fed changes drive rates higher
The average card APR is currently at its highest point since CreditCards.com began tracking rates in mid-2007. As more card issuers match the Fed’s latest rate change, the average card APR is likely to get within rounding distance of 17 percent for the first time on record.

Already, card APRs have climbed significantly since the Fed first began shifting rates rates after a seven-year pause in late 2015. Since December 1, 2015, for example, the national average card APR has climbed by nearly 1.5 percent.

The Fed also signaled this month that it would likely increase its benchmark interest rate at least two more times before the end of the year. That could push the national average APR over 17 percent – a big departure from years past when average rates hovered closer to 15 percent. Before 2017, the average card APR stayed within rounding distance of 15 percent for more than six consecutive years.

Analysts have warned that as interest rates climb higher, a growing number of cardholders could feel squeezed by the bigger charges and struggle to pay the minimum amounts due on their cards. When a card’s interest rate rises, so too does the minimum amount that cardholders have to pay on revolving balances.

Already, late payments on credit cards have climbed significantly after falling to record lows. According to Experian and S&P’s latest report on missed credit card payments, the default rate for bank-issued cards has climbed to its highest level in five and a half years. The last time this many people missed payments on their bank-issued credit cards was in October 2012, said S&P and Experian.

“The rate has been trending upward since its December 2015 low and has not been below 2.49 percent in more than two years,” said S&P’s David M. Blitzer in a news release. However, it’s not clear if higher rates or other unknown factors are causing people to fall behind on their bills. “While interest rates on bank cards are substantially higher than the rates on other forms of consumer borrowing, they are little changed in the last two or three years.”

It’s possible that other factors are at play, he says, but “different measures of consumer debt service do not point to increased credit problems.” In addition, consumer spending is rising, but not by enough to account for the increased incidence of missed payments. “After 15 consecutive months with the bank card default rates higher than year-earlier levels, this trend could be a hint of unrecognized issues,” says Blizer.

Not all lenders are reacting to the Fed changes by hiking rates, though. Kemba, a small credit union in Columbus, Ohio, announced March 27 that it cut rates to where they were in 2017 and will freeze consumers’ interest rates until early 2019. It said that the Fed’s ongoing rate hikes, and the increased uncertainty that is affecting consumers with high rate card debt, helped inspire its decision.

“Most consumers will feel the effects of a prime rate increase almost immediately,” said the credit union’s President and CEO Jerry Guy in a news release. “Our members can be confident that their credit card rates will remain consistent throughout 2018 regardless of any future Fed driven increases, which provides a sense of financial stability and predictability.”

CreditCards.com's Weekly Rate Report
  Avg. APR Last week 6 months ago
National average 16.47% 16.41%
16.15%
Low interest 13.21%
13.14% 12.89%
Cash back 16.70%
16.67%
16.40%
Balance transfer 15.70%
15.63%
15.38%
Business 14.01%
13.93%
13.68%
Student 15.98%
15.92%
15.70%
Airline 16.47%
16.41%
16.07%
Reward  16.56%
16.51%
16.24%
Instant approval 18.82%
18.82%
18.60%
Bad credit 23.68%
23.62%
23.46%
Methodology: The national average credit card APR is comprised of 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.)
Source: CreditCards.com
Updated: March 28, 2018

See related: Historic credit card rates chart, Fed: Card balances grew by $700 million in January



Join the discussion
We encourage an active and insightful conversation among our users. Please help us keep our community civil and respectful. For your safety, do not disclose confidential or personal information such as bank account numbers or social security numbers. Anything you post may be disclosed, published, transmitted or reused.

If you are commenting using a Facebook account, your profile information may be displayed with your comment depending on your privacy settings. By leaving the 'Post to Facebook' box selected, your comment will be published to your Facebook profile in addition to the space below.

The editorial content on CreditCards.com is not sponsored by any bank or credit card issuer. The journalists in the editorial department are separate from the company's business operations. The comments posted below are not provided, reviewed or approved by any company mentioned in our editorial content. Additionally, any companies mentioned in the content do not assume responsibility to ensure that all posts and/or questions are answered.




Weekly newsletter
Get the latest news, advice, articles and tips delivered to your inbox. It's FREE.


Updated: 04-26-2018