The Fed’s key interest rate may be on ice for the time being. However, APRs for brand-new cards are still climbing, according to CreditCards.com’s latest Weekly Rate Report. At least three lenders modified some of the APRs they advertise online this week. As a result, the average APR for brand-new cards jumped Wednesday to another high.
The average credit card interest rate is 21.10 percent.
Nevermind about card issuers taking a collective break from hiking rates. The average credit card interest rate increased after all this week after three separate lenders selectively hiked a handful of card APRs they advertise online.
As a result, the average APR for brand-new cards broke another record on Wednesday, rising to its steepest point since CreditCards.com began tracking online card offers in June 2007. For context, the highest weekly APR average CreditCards.com had ever recorded prior to the pandemic was 17.8 percent.
The Federal Reserve’s key interest rate, by contrast, is currently stalled at its highest point since 2001 and is widely expected to stay there for some time.
Although members of the Fed’s rate-setting meet two more times this year to discuss monetary policy, market observers now widely expect Fed policymakers to wait until mid- to late-2024 to revise the central bank’s key rate, according to the CME Fed Watch tool. In fact, most observers not only believe the federal funds rate has likely already peaked for 2023; a majority now bet that it will remain unchanged through spring before finally beginning to recede next summer.
However, even if benchmark interest rates do remain fixed in place until later next year, that doesn’t necessarily mean that new card APRs are near their peak. On the contrary, many lenders still show little sign of pulling back from higher rates.
In addition to Fed-inspired rate hikes, some lenders are continuing to independently hike APRs on selected cards
Historically, most credit card lenders have opted to follow the Fed’s lead when pricing new card offers and have swiftly revised the APRs they advertise online each time the Fed has announced a rate change. Since March of last year, for example, the Fed has announced 11 separate rate hikes, causing the federal funds rate to climb at a historic pace in a relatively short period.
Since then, most lenders have opted to increase APRs on most new card offers by the same five and a quarter percentage points, causing the average card APR to surge higher and faster in the last year and a half than it ever has before.
However, lenders aren’t necessarily required to revise APRs when federal rates change nor must they follow the Fed’s lead when federal rates are fixed.
Although card APRs are typically more stable when federal rates hold steady, lenders have grown bolder lately with the rates they’re willing to charge. In addition, some lenders have introduced independent rate changes at a more frequent rate this year. So the average APR for brand-new cards could continue to increase this autumn, even without rate hikes from the Fed.
This week, for example, Capital One, Barclaycard and Credit One all adjusted rates on several cards by the same quarter of a percentage point, belatedly matching the Fed’s July rate hike.
However, Capital One also introduced an even more aggressive rate hike to the Walmart Rewards Mastercard, causing the store card’s minimum APR to rise by a full point.
Other lenders such as Chase, TD Bank and First National Bank of Omaha (FNBO) have also hiked APRs on certain cards at a more aggressive pace in recent months, surpassing federal rate hikes.
More lenders are now pushing APRs well past 30 percent
Lenders have also grown less timid about charging APRs that were once all-but-unheard-of on a general market credit card.
This week, for example, Barclaycard pushed the maximum APR on the Carnival World Mastercard past 30 percent for the first time after pointedly leaving it at 29.99 percent earlier this summer. Previously, Barclaycard had increased minimum APRs on several cards in tandem with the Fed’s July rate hike, but left maximum APRs unchanged if they were already at 29.99 percent.
Capital One also broke a record this week, pushing the APRs its advertises on several cards to 30.74 percent.
Until recently, Capital One had appeared reluctant to push APRs so high. As a result, APRs on some Capital One cards have increased more slowly in the past year than others. Since March 2022, for example, Capital One has only hiked rates on its line of credit building cards by 3.75 percentage points, despite increasing APRs on less expensive cards by 5.25 percentage points.
Most new card offers now advertise maximum APRs near 30 percent, according to CreditCards.com data. Among the 100 cards tracked weekly by CreditCards.com, for example:
- A record number — 16 out of 100 offers — now cap APRs at 30.24 percent or more.
- Nine charge APRs above 31 percent, while three charge APRs above 32 percent.
- Thirty-eight out of 100 online card offers cap APRs at 29.99 percent.
- Fifty-six advertise maximum rates above 29 percent.
- Seventy-seven out of 100 online card offers cap APRs at 28 percent or more.
- Only sixteen cap rates below 27 percent.
- Eleven only offer rates under 26 percent.
In March 2022, by contrast, just 12 out of 100 online card offers advertised APRs above 26 percent. Instead, the vast majority of new card offers tracked by CreditCards.com (82 out of 100 offers) capped APRs somewhere below 25 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
|Rate||Avg. APR||Last week||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: October 4, 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.