Credit card issuers left APR offers alone this week as they awaited confirmation from the Fed that the central bank’s key rate wouldn’t change this month. As a result, the average APR for brand-new cards held steady Wednesday at its highest point on record, according to CreditCards.com’s latest Weekly Rate Report.
The average credit card interest rate is 21.07 percent.
After growing steadily more expensive since March of last year, the cost to carry debt on a brand-new card is still pricier than ever, according to CreditCards.com’s latest Weekly Rate Report.
A record share of online credit card offers — 52 out of 100 offers — currently start APRs well above 20 percent, while a similar share of card offers cap APRs at 29 percent or higher.
But now that policymakers at the Federal Reserve have voted to leave the Fed’s key rate in place for the first time since June, credit card issuers may be more inclined to temporarily freeze new card APRs as well — at least until the Fed’s rate-setting committee meets again in late October.
Lenders technically don’t have to follow the Fed’s lead when pricing new credit card offers, but, historically, most do.
On Wednesday, Federal Reserve officials announced a temporary freeze on the central bank’s influential federal funds rate, giving existing credit card holders at least a six-week break from rising rates.
After pushing up rates 11 times in 14 months in an aggressive bid to stamp out lingering inflation, Federal Reserve officials now say that they are stepping back temporarily so they can analyze incoming data and give previous rate hikes more time to ripple through the economy.
That doesn’t mean, though, that the Fed’s historic rate-hiking campaign from the past year and a half is over.
Fed officials still expect to raise rates one more time in 2023
In a statement announcing this month’s rate freeze, Fed officials reiterated their commitment to combatting inflation and made clear that they may still hike rates again in the coming months if necessary to push inflation closer to a target rate of 2 percent.
“In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook,” said Federal Open Market Committee (FOMC) members in a statement. “The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals.”
Although controversial, the Fed’s policy of raising rates in response to widespread price increases has long been seen by Fed policymakers as a key tool for combating inflation. Part of policymakers’ goal, for example, is to help cool the economy without pushing it into a deep recession.
However, competing economic signals have complicated the Fed’s decision-making, making it harder to guess the Fed’s next moves. The job market and consumer spending remain relatively strong, but borrowers have also shown more strain lately from higher rates and debt levels.
“The Committee’s assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments,” wrote policymakers.
Members of the Fed’s rate-setting committee are scheduled to meet again on October 31 and November 1 and then one more time in mid-December.
According to projections that the Fed also released on Wednesday, most committee members expect the Fed’s target rate to end the year at 5.50 to 5.75 percent — up a quarter of a percentage point from where it stands today. However, it’s not yet clear when such a rate hike might happen.
Market observers largely expect the Fed to announce a quarter point rate hike on November 1, according to the CME FedWatch Tool. But depending on incoming economic data, committee members may instead wait until December 13 to announce another rate hike — or they may decide to leave rates unchanged until 2024.
Even with a rate pause, cards are likely to stay expensive for some time
Regardless of whether or not benchmark interest rates rise again this autumn, credit card holders can still expect their existing card APRs to stay at historic highs for some time.
Fed officials have made clear that they have no plans to cut benchmark rates any time soon, and card issuers have so far shown little willingness to absorb this year’s higher borrowing costs themselves.
At a press conference following the Fed’s announcement, Federal Reserve chairman Jerome Powell once again threw cold water on the possibility of a rate cut before the end of the year.
“We need to get to a place where we’re confident that we have a stance that will bring inflation down to 2 percent over time,” said Powell. “And we’ve been moving toward it,” he added. “As we’ve gotten closer to it, we’ve slowed the pace at which we’ve moved.”
However, Federal Reserve officials still aren’t satisfied with the current rate of inflation. So as long as the economy remains relatively strong, Fed officials remain committed to leaving rates high for some time.
Powell also noted at the press conference that consumers’ personal finances still appear relatively strong, despite sharply higher borrowing costs.
For example, signs of consumer distress such as delinquencies (late payments by 30 days or more) have only recently returned to pre-pandemic levels, Powell noted, and have not yet hit “troublingly high levels.”
Policymakers currently feel that consumers are still financially healthy enough overall to absorb this year’s higher rates, Powell indicated. However, that could change quickly, depending on the performance of the economy over the next few months.
Student loan payments restart next month, saddling millions of borrowers with bigger monthly expenses at a time when retail prices are still relatively high and gas prices are rising. In addition, potential weakness in the labor market later this year could also make it harder for a growing share of borrowers to keep up with their payments.
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: September 20, 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.