The average APR for brand-new cards fell Wednesday for the first time in months after a major bank cut the starting APR on a signature balance transfer card. But with the prime rate at a 22-year-high, most new card offers are still advertising APRs that are several points above pre-pandemic peaks.
The average credit card interest rate is 21.04 percent.
APRs for most new cards are still higher than ever, according to CreditCards.com’s latest Weekly Rate Report.
Just over a month has passed since the prime rate climbed to its highest point since 2001 and, already, a record share of card offers are advertising APRs that were once assigned only to borrowers with new or dented credit.
Among the 100 online card offers tracked weekly by CreditCards.com:
- More than 80 percent now start APRs at 18.24 percent or higher, up from roughly a third of card offers last August.
- Over half start APRs above 20 percent, up from 18 percent a year ago.
- A full third start APRs above 21 percent, up from 17 percent last year.
Until last summer, by contrast, the highest weekly APR average CreditCards.com had ever recorded was 17.8 percent. In fact, for most of the last decade, the average card APR typically hovered near 15 and 16 percent.
But after more than a year of record-breaking rate increases, some lenders are now partially winding back months-worth of rate hikes on select cards, giving cardholders at least somewhat of a reprieve.
This week, for example, at least one major credit card issuer, U.S. Bank, pushed the starting APR on the bank’s signature balance transfer card to a nine-month low, erasing four quarter-point rate hikes from the past year.
As a result, the average APR for brand-new cards dipped Wednesday for the first time since May, dropping by one basis point from an all-time high of 21.05 percent.
With rates at a historic high, lenders are growing more selective with the APRs they advertise online
U.S. Bank’s decision to trim the starting APR on the U.S. Bank Visa Platinum card by a full percentage point this week was unusual, but not unprecedented.
Rate cuts on new card offers are rare, especially when federal rates are higher. In the last year and a half, for example, the average new card APR has slipped just six times in 80 weeks, underscoring just how sticky rate hikes are these days.
Rather than pare back new card APRs, most credit card issuers have instead followed in the footsteps of the Federal Reserve and pushed up APRs at a historic pace, causing APRs on most new cards to climb by the same five and a quarter percentage points. Some have even increased rates by an even larger amount in recent months, outpacing federal rate hikes.
Though lenders who tie new cards to the prime rate technically don’t have to pass on federal rate hikes to brand-new cardholders, historically, most do.
But not every lender has chosen to inflate new card APRs at the same rate. For example, some have chosen to leave maximum APRs on certain cards unchanged rather than extend rate caps past 29.99 percent.
Others have taken an even more cautious approach, slowing or rolling back rate hikes on select cards. Among the country’s biggest issuers, for example, Bank of America, Citi and now U.S. Bank, have all trimmed APRs on certain balance transfer cards, giving cardholders with debt a rare reprieve.
Earlier this year, Bank of America made waves by slashing rates on several cash back and balance transfer cards by three-quarters of a percentage point. Similarly, Citibank rolled back rate increases on at least two balance transfer cards by the same amount last fall.
As a result, the average APR for balance transfer cards has climbed at a somewhat slower pace this year compared to other card categories.
The minimum APR on the U.S. Bank Visa Platinum now sits at 18.74 percent, which is nearly half a point lower than the average APR for a balance transfer card. The minimum APR for the Citi Diamond Preferred card is also below average for a balance transfer card. It starts at 18.24 percent.
The BankAmericard Mastercard, meanwhile, is currently one of the only bank cards on the market that still offers a minimum APR near 16 percent.
Among the 100 cards tracked weekly by CreditCards.com, only nine offer an APR under 17 percent. Just over a third offer rates below 19 percent.
But even though lower rates are available on some credit cards, cardholders looking to transfer a balance could still have trouble securing a more affordable APR.
For example, all three lenders that have trimmed the starting APRs on some balance transfer cards have opted to leave maximum APRs unchanged.
As a result, the average maximum APR for a balance transfer card has continued to climb. Currently, the average balance transfer offer caps APRs at an all-time record high of 28.05 percent. Meanwhile, the average median APR for a balance transfer card now sits at 23.63 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 30, 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.