Credit card interest rates increased following Chase’s adjustment of a card offer.
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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 national average annual percentage rate (APR) for new cards increased to14.44 percent, following last week’s decline, which was the first rate pullback since May. On the whole, banks have been taking steps — including raising rates — to guard against losses over recent months. This week, APRs were lifted by Chase‘s decision to revise a card offer.
Chase adjusted its Slate card offer, with the product now charging APRs between 13.24 percent and 22.24 percent, compared with an earlier range between 11.24 percent and 22.24 percent. Since the national average is calculated using the low end of any APR ranges, that change caused rates overall to move higher.
In an effort to protect themselves from potential losses, banks have raised interest rates and generally tightened lending standards. Those strict criteria were confirmed by the Federal Reserve’s latest Beige Book survey of its 12 regional banks, as most districts “reporting on credit standards continued to note that lending standards remain restrictive,” the Fed said.
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 $6,430 to pay off the debt. That’s $100 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?)
Delinquencies are down
But the economic threats that prompted those higher rates may be diminishing. Recent earnings reports from major card issuers show that delinquencies — or unpaid bills — declined in the second quarter, according to data from the American Bankers Association.
CardWeb.com reports that in the second quarter, credit card delinquencies fell to 4.66 percent among major card issuers and 21 basis points on the ABA delinquency rate scale. “Overall card delinquencies fell more than half of one percent to 3.88 percent from 4.39 percent of all accounts, which is below the 15-year average (3.93 percent),” CardWeb said, adding that Capital One and Discover both saw delinquency rates decline from the prior quarter.
Even if the economy experiences further weakness, some analysts believe that when it comes to credit card losses, the worst is over. Moody’s says that despite rising concerns about a double-dip recession, banks aren’t likely to again see the peaks in charge-offs, or uncollectable loans, reached earlier in the recession. “The negative consequences of a double dip would not be significant for credit card charge-offs because even if the unemployment rate increased to 14 percent from 10 percent, credit card charge-offs would peak at around 10 percent,” Moody’s writes. “This result contrasts with the long-observed correlation between the unemployment rate and credit card charge-offs.”
History shows that losses incurred by banks track jobless levels, since unemployment often leaves borrowers unable to repay their loans. So what makes things different this time? Moody’s says that charge-offs will be held in check by a combination that includes banks’ tighter lending standards, improved quality of card portfolios (since charge-offs remove bad credit from portfolios) and reduced hosuehold debt levels.
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