Interest rates on new credit card offers fell for the second straight week, according to the CreditCards.com Weekly Credit Card Rate Report, amid signs the consumer lending environment may be improving.
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|CreditCards.com’s Weekly Rate Report|
|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.)|
The drop sent the average interest rate on new card offers to its lowest level since January and marked the first time since tracking began in 2007 that annual percentage rates (APRs) fell for five straight weeks. This week, rates were driven lower after Citi decreased the low end of the APR range on its Platinum Select MasterCard. Analysts say that banks are working to encourage borrowers as the economy recovers.
Perhaps “they overshot the mark when they were repricing for risk over the last year or so” or they’re reacting to an improving economy, Susan Menke, vice president and behavioral economist with Mintel, says in an e-mail. “They are also all competing for prime customers — hence lowering rates on the low end,” Menke says, referring to customers with the highest credit scores.
Citi reduced the APR on its Citi Platinum Select MasterCard from a range of 11.99 to 19.99 percent to a range of 9.99 to 19.99 percent. Although Citi didn’t respond to requests for comment, it has previously identified card pricing and term adjustments as part of its regular account reviews.
Citi highlighted those moves in its first-quarter earnings announcement. “The growth in card revenues primarily reflects pricing actions, partially offset by lower volumes,” the bank said in its April release, acknowledging that consumers are using plastic less.
Stemming the tide
Banks are waging a difficult battle to overcome consumers’ waning enthusiasm for plastic. The Federal Reserve’s consumer credit report for March showed that revolving balances — composed primarily of credit card debt — fell 4.5 percent, marking the 18th straight month of decline for that debt category.
Throughout that year-and-a-half period, card APRs were moving steadily upward. Record highs were established only last month. On April 7, following a string of increases, APRs reached a record level of 14.70 percent. The current downward movement has pushed the average well off of those record levels, but credit is still pricey.
As a result, carrying a balance remains more costly than it was six months ago. For example, a typical cardholder who borrowed $5,000 on a credit card today and consistently paid $150 per month at today’s average interest rate would have to pay $6,383 to pay off the debt. That’s $172 more than would have been required six months earlier. (Calculator: How long will it take to pay off your credit card balance?)
Signs of improvement
Consumers, meanwhile, are seeing improvement in their finances. Data from nonprofit Consumer Reports shows that fewer people had trouble paying their medical bills, experienced negative changes in their credit card terms or had difficulty paying major bills (excluding mortgages) in April.
Taken alongside gains in employment, increased retail spending and improved consumer sentiment, the data provides further signs of economic recovery. “We are seeing modest improvements across our indices since April, which demonstrate that consumers are starting the long slog out of this historic recession,” Ed Farrell, a director of the Consumer Reports National Research Center, said in a press release. “But a full recovery will require a substantial period of growth for consumer confidence to fully take hold.”
See related: Consumer credit card debt keeps dropping, Credit card lending standards keep tightening, Fed report says, Credit card reform arrives in the form of the Credit CARD Act, Calculator: How long will it take to pay off your credit card balance?, Credit card rates: interactive graphic on APR changes