APRs on brand-new cards are continuing to climb as more lenders match the Federal Reserve’s latest rate hike.
The average credit card interest rate is 16.58%.
The credit card market is continuing to shift rapidly as more lenders respond to the Federal Reserve’s most recent rate hike with half-point increases of their own. More than two weeks after the Federal Reserve announced its biggest rate hike in decades, causing the U.S. Prime to soar to its highest level in years, several lenders have now updated their credit card offers to reflect a higher prime rate. As a result, credit card shoppers are seeing higher APRs on average than they’ve seen in more than two years, according to CreditCards.com’s Weekly Credit Card Rate Report.
This week, several store and gas credit cards began advertising higher APRs, including the Bloomingdale’s American Express card, Meijer Mastercard, L.L. Bean Mastercard, Nordstrom Visa Platinum card and Shell Fuel Rewards card. As a result, borrowers who shopped around for a new co-branded retail credit card saw especially high rates on certain cards. For example, the lowest APR you can get on the Nordstrom Visa Platinum card is now 19.65%, while the lowest rate the Meijer Mastercard offers is 25.74%. Meanwhile, the Shell Fuel Rewards card now advertises an APR of 27.24%, which is well above the average APR for subprime credit cards.
As more lenders match the Federal Reserve’s half-point rate hike, average APRs will continue to climb. So far, only about half of the nation’s largest credit card issuers have hiked APRs on new card offers by half of a percentage point, including American Express, Citi, U.S. Bank and Wells Fargo.
Meanwhile, other lenders, such as Discover, Bank of America, Chase and Capital One, are still standing by. But they are all but certain to hike rates on most new card offers relatively soon. Although lenders aren’t technically required to revise APRs on brand-new credit cards when federal interest rates change, most do.
As a result, credit card shoppers can expect average APRs to only get higher in the coming weeks.
Cards with ultra-low interest rates are quickly disappearing
Already, the Federal Reserve’s most recent rates hikes are having a major effect on the kinds of cards new customers can find.
Among the 100 cards tracked weekly by CreditCards.com, for example, the share of new credit card offers with ultra-low APRs has fallen dramatically since March when the Fed first began increasing target interest rates in an ongoing effort to fight inflation.
In early March, for example, more than half of all cards (55 total) tracked by CreditCards.com advertised APRs under 15%, while a significant share (40 total) advertised APRs under 14%.
Now, only 41 out of 100 cards tracked weekly by CreditCards.com advertise an APR of 14.99% or less. Meanwhile, just 27 cards advertise an APR under 14%.
The share of cards with APRs under 12% are also dwindling. For example, only 12 cards included in the weekly rate report currently advertise an APR as low as 11.99% or less. In March, by contrast, 18 cards tracked by CreditCards.com advertised ultra-low APRs under 12%.
Now, as the Federal Reserve prepares to hike rates again in June, such low APRs are sure to become extinct.
Rates will climb as the Fed promises more aggressive rate hikes
The Federal Reserve has made clear that it will continue hiking rates aggressively in order to curb rising inflation. For example, it’s expected to raise rates by half a point at its next meeting and is likely to do so again at the meeting after that.
Traditionally, the Fed opts for a more gradual path to higher rates, typically increasing the federal funds rate by just a quarter of a percentage point at a time. In fact, the last time the Federal Reserve increased the federal funds rate by half of a percentage point was more than 20 years ago (when the Fed increased rates by half a point in 2000 in another effort to force down high inflation).
At that time, the decision to hike rates to rein in inflation appeared to work, with inflation falling significantly between 2000 and 2002.
Federal Reserve officials are hoping that a more aggressive monetary policy will work again this year, even though the factors driving inflation this time around are very different.
But for borrowers hoping for a reprieve from higher rates, the Fed’s latest decision will likely come as an unwelcome surprise as the APRs on existing cards automatically jump by half a point this month after increasing by a quarter of a percentage point in March.
Why rates on new card offers are climbing
Most U.S. credit cards are tied to the U.S. 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 lenders do revise the APRs they advertise when the card’s base rate changes.
That’s what happened in the spring of 2020. After the Federal Reserve slashed rates by a point-and-a-half in March 2020 in response to economic softening from the coronavirus 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 rounding distance of 16% for nearly 24 months.
But now that the U.S. prime rate is up, credit card offers are following suit. Current credit cardholders 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: May 18, 2022
Historic interest rates by card type
Some credit cards charge even higher average interest rates. The type of rate you get will depend in part on the category of credit card you own. For example, even the best travel credit cards often charge higher rates than basic, low-interest credit cards.
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% 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. Reach out to your credit card issuer and ask if it’d be willing to negotiate a lower APR.
- Monitor your credit report. Check your credit reports regularly to make 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 April 2022 due to the pandemic.