Card rates continue to be volatile, with cards entering and exiting the market as the industry — faced with the recession and new regulations — rapidly changes
The editorial content below is based solely on the objective assessment of our writers and is not driven by advertising dollars. However, we may receive compensation when you click on links to products from our partners. Learn more about our advertising policy.
The content on this page is accurate as of the posting date; however, some of the offers mentioned may have expired. Please see the bank’s website for the most current version of card offers; and please review our list of best credit cards, or use our CardMatch™ tool to find cards matched to your needs.
|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 latest pullback in annual percentage rates (APRs) marks the longest fall since CreditCards.com began tracking rates in 2007 and coincides with signs the U.S. economy is on the mend. This week, subprime issuer First Premier drove rates lower after it eliminated two card offers, which were replaced in CreditCards.com’s database with similar products carrying lower APRs.
Card offers re-evaluated
First Premier which markets cards to customers with poor credit, removed its First Premier Bank Classic and Aventium cards following a routine offer review. “As part of our ongoing process, we routinely review and evaluate the offers that we are marketing and decided to pull back these offers for the time being. They may or may not be brought back in the future based on that continued evaluation,” says Darrin Graham, vice president of marketing with Premier Bankcard.
The recent declines have brought APRs down from elevated levels. Just six months ago, the average national rate for credit card offers stood at 12.44 percent. But a steady series of increases brought them to 14.70 percent on April 7, 2010, the highest on record.
And despite the four consecutive declines there’s still a great deal of lift under card rates, as the industry continues to search for ways to restore profits lost to the recession and new federal regulation. One favorite method: raise rates. A Federal Reserve survey of large banks’ senior loan officers released earlier this week showed that 27 percent of them reported raising credit card interest rates in the first three months of 2010. None of those surveyed cut rates.
As a result, 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 $6,386 to pay off the debt. That’s $194 more than would have been required six months earlier, although the difference in cost has continued to lessen over recent weeks. (Calculator: How long will it take to pay off your credit card balance?)
CARD Act limits changes to existing cards
Although the CARD Act restricts banks’ ability to raise rates on existing card products, they are free to boost rates for new card offers. For the time being, existing cardholders shouldn’t see their rates increase unexpectedly unless they miss a payment or make another borrowing mistake.
That doesn’t mean rates won’t eventually increase, however: APRs for the majority of cards are now tied to the prime rate — which fluctuates based on changes in the Fed’s key lending rate — and will therefore rise automatically once the Fed eventually boosts the federal funds rate.
Some variable rate cards may see APR changes even before the Fed moves. This week, the upper end of the APR range on the Cabela’s Club Visa card rose to between 9.99 and 18.27 percent from between 9.99 and 18.24 percent previously. When reached for comment, the outdoor sporting goods retailer explained that the card’s APR is based on the London Interbank Offered Rate. LIBOR is the British equivalent of the American prime rate, to which most U.S. cards are pegged. The prime rate hasn’t moved since late 2008, but LIBOR did, resulting in Cabela’s change.
As for the low end of that APR range, “9.99 percent is a fixed rate for purchases at Cabela’s and actually some of our cardholders receive 7.99 percent on Cabela’s purchases,” says executive vice president Kevin Werts. He was unwilling to discuss which customers qualify for that lower rate, saying that information was proprietary.
Cabela’s first-quarter earnings announcement provided further details. During that period, the company’s card program saw “increased interest and fee income, lower provision for loan losses and lower interest expense” alongside a slower pace of charge-offs — or the amount of unpaid debt it has given up on collecting. “This is the lowest quarterly increase in net charge-offs in the past two years and the lowest absolute charge-off rate in the past three quarters,” Cabela’s said, suggesting borrowers may finally be getting a better handle on their finances.
Cardholders feeling positive
Other card issuers also point to improving consumer health. Discover’s ongoing U.S. spending monitor for April showed the highest level of consumer confidence since November 2007. “Consumers, especially those below the age of 40, are feeling better about the economy and less pessimistic about their finances,” said Julie Loeger, Discover’s senior vice president of brand and product management, said in a company press release. The firm expressed hope that “the growing economic and financial confidence of younger consumers continues, and ultimately helps improve the confidence among all Americans.”
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