Credit card APRs increased for the fifth straight week, the longest increase in nearly three years.
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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 ongoing rise in annual percentage rates (APRs) brings the national average rate on new card offers to 14.43 percent — the highest since April of 2010, when the rate hit a record 14.7 percent. APRs are currently experiencing the longest streak of increases since late summer 2007, when rates rose for seven straight weeks. The most recent APR gains follow an online card offer change that prompted a reshuffling of the CreditCards.com database.
Analysts say the upward rates movement represents a change from prior months. “This reverses a trend of declining APRs seen in April and May as a result of increasing competition,” says Andrew Davidson, senior vice president of Mintel Comperemedia, a Chicago direct-mail research consulting firm. “I suspect it indicates a shift in strategy by a small number of issuers rather than an industry-wide change.”
This week, changes occurred after the Walmart Discover Card, with an APR range of 13.9 percent to 22.9 percent, was replaced in our database with the Walmart credit card, with a single rate of 22.9 percent. G.E. Money, which runs the card program, said it has temporarily removed the Walmart Discover card offer from the Internet so that customers can only apply online for the Walmart credit card — which can only be used in Walmart and affiliated stores, as opposed to the Discover card which can be used anywhere.
“Customers wishing to apply for a Walmart Discover may apply in-store. As soon as we can make the necessary changes, we will restore the online Walmart Discover application,” says G.E. Money spokeswoman Dori Abel. Because CreditCards.com’s rates calculations are based on the bottom end of any APR ranges, the switch to a card with a single rate was viewed as an increase.
That means 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 $6,428 to pay off the debt. That’s $193 more than would have been required six months earlier. (Calculator: How long will it take to pay off your credit card balance?)
Combine those higher borrowing costs with a tough job market, and it’s not surprising consumers are hesitant to take on debt. Recent economic data shows that while U.S. personal incomes increased 0.4 percent in May from April, consumer spending only rose by 0.2 percent. The personal savings rate, meanwhile, reached 4 percent from 3.8 percent a month before. That’s the highest savings rate since September.
Cardholders may be debt shy, but lenders are anxious to get them charging. Some experts believe that banks will soon resume the battle for cardholders — producing positive results for borrowers. “As competitive pressures continue to mount, I anticipate that terms will continue to become more favorable for consumers,” Davidson says.
See related: 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