Interest rates on new card offers rose to a one-year high this week after the Federal Reserve increased rates for the first time since 2006, according to the CreditCards.com Weekly Credit Card Rate Report.
Multiple issuers responded to the Federal Reserve’s 0.25 percent rate increase by hiking APRs on new card offers by the same amount. As a result, the national average annual percentage rate rose to 15.05 percent. When the Federal Reserve raises interest rates, issuers can pass along those rate increases without giving cardholders prior notice. The increase in the interest rate will be applied to the entire balance, not just on new purchases.
Among the 100 cards CreditCards.com tracks, 25 advertised slightly higher rates this week. American Express, Wells Fargo, U.S. Bank, Huntington Bank, Key Bank and Comerica were among the issuers that increased rates by 0.25 percent. Capital One also increased interest rates last week, just a few days before the Federal Reserve’s announcement.
Card debt expands to nearly 6-year high
The rate increases have been expected for some time. The Federal Reserve initially planned to raise interest rates in 2014. But despite the impending increases, U.S. credit card holders have continued to pack on debt.
According to Experian’s Market Intelligence Brief, the total amount of debt consumers owe on their cards rose to $650 billion in the third quarter, indicating that consumers have become much more comfortable in recent years charging larger purchases and carrying bigger balances. According to Experian, cardholders haven’t owed this much on their cards since late 2009.
But despite owing more overall, most consumers are keeping up with their obligations and paying their bills on time. According to Experian, late payments by 60 days or more have fallen by more than 70 percent since 2009 and currently rest near record lows.
The low number of late payments they receive seems to have emboldened card issuers, approving more cardholders with lower scores. It’s also led issuers to increase credit limits by more than 100 percent since late 2009.
“The increase in limits from lenders and the steady climb in credit card debt combined with exceptional delinquency rates signals greater confidence among consumers as they are showing more assurance in managing their credit since the recession,” said Experian’s Kelly Kent in a blog post.
According to Kent, credit card debt is likely to increase even further in the final quarter as consumers charge more of their holiday purchases.
Card marketing is also up
Meanwhile, card issuers are trying to lure more cardholders and encourage heavier spending by blanketing cardholders’ mailboxes with new offers.
According to the financial services group, Credit Suisse, issuers mailed 332 million card offers in November — 3 percent more than mailed the previous year.
A larger number of offers typically means issuers are competing more aggressively for new cardholders. “We believe that competitiveness remains high and will continue to ramp up in 2016 as the major issuers, particularly American Express, seek to add new accounts,” wrote Credit Suisse’s Moshe Orenbuch and Serena Hong in a Dec. 21 research note. American Express recently lost a number of long-term accounts when it failed to renew partnership agreements with wholesale retailer Costco and JetBlue airline.
According to Credit Suisse, the total number of card offers issuers mailed this year will likely be smaller than in 2014. Credit Suisse anticipates that card issuers will have mailed just 3.8 billion offers this year — down from 4 billion offers in 2014. But the financial services group expects mail volume will increase considerably in the next year to at least 4 billion card offers by the end of 2016.
“Given the ease with which issuers can increase and decrease mail volume and commentary on higher marketing expense, we believe spending will increase materially in the fourth quarter of 2015 and see the high level continuing into 2016,” wrote Orenbuch and Hong.
|CreditCards.com’s Weekly Rate Report|
|Avg. APR||Last week||6 months ago|
|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.)|
|Updated: Dec. 23, 2015|