With the U.S. prime rate at its highest point in decades, credit card lenders are rapidly adjusting the offers they advertise online and pushing up starting APRs to record heights. As a result, consumers on the hunt for a brand-new card are finding it all-but-impossible to secure a rate that’s anywhere close to what they could get a few years ago.
The average credit card interest rate is 21.04 percent.
More than three years have passed since the Federal Reserve pushed benchmark rates near zero in response to the coronavirus pandemic and then left them at rock bottom for two consequential years.
Since then, policymakers have not only sharply rolled-back those pandemic-era rate cuts. They have also aggressively pushed rates to a 22-year-high in order to combat stubborn inflation. As a result, the average cost of credit has soared well above pre-pandemic levels, particularly on variable rate cards, which remain sensitive to federal rate changes.
According to CreditCards.com’s latest Weekly Rate Report, for example, the average APR for a brand-new credit card surpassed 21 percent this month for the first time ever after multiple lenders matched the Fed’s latest rate hike.
For context, that’s more than three points higher than the pre-pandemic record set in July 2019 and nearly five points higher than the average card APR in March 2021.
Although lenders technically don’t have to revise the APRs they advertise online when federal rates climb, historically, most do.
However, dramatically higher benchmark rates aren’t the only reason APRs on brand-new cards are climbing. Credit card lenders have also grown bolder with the rates they’re willing to charge, with many lenders dramatically expanding the spread between a card’s prime rate and available APR.
This week, for example, Goldman Sachs pushed the best-available APR on the four-year-old Apple credit card from 15.99 percent to 19.24 percent, causing the spread between the card’s minimum APR and prime rate to climb by another three-and-a-quarter percentage points.
All together, 10.74 percentage points now separate the Apple card’s lowest possible APR from the prime rate. Goldman Sachs also pushed the Apple card’s maximum APR from 26.99 percent to 29.49 percent this week, putting nearly 21 points worth of distance between the card’s rate cap and prime.
Other lenders have also introduced independent rate hikes in recent months, outpacing federal rate changes. Since May, for example, Chase has quietly pushed up the APRs for a number of popular Chase cards by at least a quarter of a percentage point more than federal rates have climbed.
Similarly, TD Bank also recently pushed up the APR on the TD Cash Visa by an extra quarter of a percentage point. As a result, the card’s minimum APR is now seven percentage points higher than it was in March 2022. The U.S. prime rate, by contrast, has only climbed by five and a quarter percentage points.
The lenders’ selective rate increases have helped to fuel a trend that’s been going on for some time. As lenders continue to selectively introduce independent rate hikes on top of Fed-inspired rate changes, the average spread between a card’s prime rate and advertised APR has continued to grow wider.
Right now, more than 12 and a half percentage points separate the average card APR of 21.04 percent from the U.S. prime rate of 8.5 percent.
The last time the prime rate surpassed 8 percent, by contrast, the difference between the average new card APR and the prime rate was much smaller. On August 16, 2007, for example, the average APR for brand-new cards clocked in at 13.2 percent — only 4.95 percentage points above the prime rate at the time.
Overall, the floor for credit card APRs has climbed so sharply since last year that cards with minimum APRs near the historical average have become all-but-impossible to find. As a result, even cardholders with excellent credit are increasingly being assigned APRs near 20 percent.
Among the 100 cards tracked weekly by CreditCards.com, for example, only nine offer APRs under 17 percent, while fewer than a quarter offer rates below 18 percent. Instead, most cards tracked by CreditCards.com — 51 percent — now start APRs at 20 percent or higher.
That’s a striking change from previous years when minimum APRs above 20 percent were relatively rare. In February 2020, for example, less than a quarter of cards started APRs at 20 percent or more, while over half started APRs somewhere below 17 percent.
Lenders have also grown bolder lately with the maximum rates they’re willing to charge. For instance, 53 percent of cards tracked by CreditCards.com now cap APRs at 29 percent or higher, while 77 percent cap APR above 28 percent.
CreditCards.com only considers a card’s lowest available APR when calculating the national average. However, most credit card offers advertise a wide range of potential interest rates — particularly on general market cards that appeal to a broad audience.
Although some applicants with the very highest credit scores may be assigned a card’s lowest possible APR, many others are instead assigned either a card’s maximum rate or an APR that falls directly in the middle of the two extremes.
Currently, the average maximum card APR sits at an all-time record high of 28.5 percent, while the average median card APR has climbed to 24.77 percent.
Why interest rates are climbing
Most U.S. credit cards are tied to the prime rate, and when the federal funds rate changes, the prime rate typically changes by the same amount.
Lenders are free to set APRs on new cards as they wish and technically aren’t required to change the APRs when a card’s base rate changes. (On the other hand, lenders are required to match changes to the prime rate on open credit card accounts that are contractually tied to it.) Historically, most issuers do revise the APRs they advertise when the card’s base rate changes.
That’s what happened in the spring of 2020. After the Fed slashed rates by a point and a half in March 2020 in response to economic softening from the pandemic, nearly all of the issuers tracked weekly by CreditCards.com — with the notable exception of Capital One — lowered new card APRs as well.
Since then, most new cards included in this rate report continued to advertise the same APRs throughout the pandemic. As a result, the national average card APR hardly budged for nearly two years, remaining within a rounding distance of 16.00 percent for nearly 24 months.
But now that the prime rate is climbing, credit card offers are following suit. Current credit card holders will also see their rates climb, causing their debt to become much more costly to carry.
CreditCards.com’s Weekly Rate Report
|6 months ago
Methodology: The national average credit card APR comprises 100 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: August 16, 2023
Historic interest rates by card type
Since 2007, CreditCards.com has calculated average rates for various credit card categories, including student cards, balance transfer cards, cash back cards and more.
How to get a low credit card interest rate
Your odds of getting approved for a card’s lowest rate will increase the more you improve your credit score. Some factors that influence your credit card APR will be out of your control, such as the age of your oldest credit accounts. However, even if you’re new to credit or are rebuilding your score, there are steps you can take to secure a lower APR. For example:
- Pay your bills on time. The single most important factor influencing your credit score — and your ability to win a lower rate — is your track record of making on-time payments. Lenders are more likely to trust you with a competitive APR and other positive terms, such as a big credit limit, if you have a lengthy history of paying your bills on time.
- Keep your balances low. Creditors also want to see that you are responsible for your credit and don’t overcharge. As a result, credit scores consider the amount of credit you’re using compared to how much credit you’ve been given. This is known as your credit utilization ratio. Typically, the lower your ratio, the better. For example, personal finance experts often recommend that you keep your balances well below 30 percent of your total credit limit.
- Build a lengthy and diverse credit history. Lenders also like to see that you’ve successfully used credit for a long time and have experience with different types of credit, including revolving credit and installment loans. As a result, credit scores, such as the FICO score and VantageScore, factor in the average length of your credit history and the types of loans you’ve handled (which is known as your credit mix). To keep your credit history as long as possible, continue to use your oldest credit card, so your issuer doesn’t close it.
- Call your issuers. If you’ve successfully owned a credit card for a long time, you may be able to convince your credit card issuers to lower your interest rate — especially if you have excellent credit. Contact your credit card issuer and try to negotiate a lower APR.
- Monitor your credit report. Check your credit reports regularly to be sure you’re accurately scored. The last thing you want is for a mistake or unauthorized account to drag down your credit score. You have the right to check your credit reports from each major credit bureau (Equifax, Experian and TransUnion) once per year for free through AnnualCreditReport.com. The three credit bureaus are also providing free weekly credit reports through 2023 due to the pandemic.