No change in credit card APRs this week

But experts say upward trend should continue in coming weeks

Credit card interest rates were unchanged this week, as banks paused after pushing rates to heights not seen in more than two years.'s Weekly Rate Report
  Avg. APR Last week 6 months ago
National average 13.17%
Business 10.74%
10.74% 11.41%
Low interest 12.17%
Balance transfer 12.40%
Cash back  12.49%
Bad credit
Airline 14.17%
Student 14.71%
Instant approval 17.62%
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.)
Updated: 1-27-2010

Interest rates on new credit card offers were at 13.17 percent, according to the Weekly Credit Card Rate Report, holding steady at levels last reached in October 2007. This follows a rash of interest rate hikes in recent weeks and marks the first time since early December that APRs haven't moved. 

Changing times, changing rates
Over recent months, lenders have been adjusting their card offers before major provisions of the landmark Credit CARD Act take effect on Feb. 22. That consumer friendly legislation will, among other things, restrict banks' ability to adjust card terms.

For some time, lenders have warned that the CARD Act would make plastic more costly for consumers. Amid the recent APR increases, it appears that prediction is coming true, experts say. "The cynical side says that [rates are rising because] the banks want to make good on their promise that if they were subject to more regulation, the cost of credit would rise," says Kathleen C. Engel, a professor at Suffolk University Law School in Boston and a national authority on subprime and predatory lending.

The increasing cost of credit
Whatever the reason for the increases, higher rates mean cardholders are paying more for credit. For example, someone 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 $6,259 to pay off the debt. That's $141 more than would have been required six months earlier.

Experts say this week's pause is likely just a temporary blip rather than the end of rates' upward trend, as banks struggle to earn more money from cardholders despite the regulatory clampdown. Rules set to take effect in February will prohibit banks from making any interest rate hikes in the first year after a card is issued and forbid any retroactive rate hikes to existing card balances, except in special cases.

Wrestling with recession
The tough economy has forced changes as well. As rising unemployment makes it difficult for cardholders to pay their bills, banks have been increasing APRs in an effort to offset their losses.

Analysts predict that these losses will increase. Moody's latest credit card index showed that although charge-offs -- the amount of unpaid debt banks give up on collecting -- declined modestly to 10.32 percent in December, high unemployment means charge-offs will likely reach 12 percent to 13 percent during the first half of 2010. That will likely translate to higher rates going forward, Engel says.

"I think [APRs] will remain high both because of credit risk and because the new regs make it harder to jack up interest rates," Engel says.

See related: A guide to the Credit CARD Act of 2009, Banks continue to tighten credit card lending standards, Fed report says, A guide to the Credit CARD Act of 2009

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Updated: 03-24-2019