The national average card APR ticked down slightly Wednesday thanks to a single rate cut on a secured credit card. However, now that the Fed has confirmed yet another historic rate hike, average APRs on brand-new credit cards are set to soar.
The average credit card interest rate is 18.16 percent.
The average APR for brand-new cards ticked down just a hair on Wednesday, thanks to a significantly lower APR on a secured card included in CreditCards.com’s rate survey.
After hiking the advertised APRs on brand-new Bank of America cards by three-quarters of a percentage point earlier this summer in tandem with the Federal Reserve’s July rate hike, Bank of America recently reversed course on at least two lower interest credit cards, including the BankAmericard Secured card.
The advertised APR on the BankAmericard Secured card is now a full point lower than it was earlier this month, matching the advertised maximum APR of 24.24 percent on the unsecured BankAmericard® credit card. As a result, the national average APR for brand-new cards slipped lower on Wednesday for the first time in months after previously hitting an all-time record high of 18.17 percent.
Most other lenders tracked by CreditCards.com have left card APRs alone in recent weeks after matching the Fed’s last rate increase. But they’re unlikely to do so much longer; now that the Federal Reserve has confirmed yet another three-quarter-point rate hike this week, the national average credit card APR is all but certain to soar this fall as lenders once again adjust to higher federal interest rates.
Although lenders aren’t technically required to revise the APRs they advertise when federal interest rates change, most do. As a result, cardholders could soon see average APRs zoom closer than ever to 19 percent, just weeks after soaring past 18 percent for the first time on record.
Fed follows through with another massive rate hike
Capping off an already dizzying summer of strikingly high rate increases, Federal Reserve policymakers made history again this week, voting to increase the federal funds rate by three-quarters-of-a-percentage point for the third time since June. Policymakers also made clear that they still aren’t done trying to arrest stubborn inflation with aggressive monetary tightening, so consumers can expect to see rates continue to climb going forward.
The Fed has now increased federal interest rates by 3 whole percentage points since March — an astonishing pace for a central bank that typically prefers a much slower approach to tightening monetary policy.
The Fed usually opts for a far more gradual path to higher interest rates, typically increasing the federal funds rate by just a quarter of a percentage point at a time. But the Fed is hoping that a much more aggressive approach to monetary policy this time around will finally help arrest the stubborn inflation that has repeatedly surprised them.
Although controversial, the policy of raising target interest rates in response to widespread price increases has long been seen by Federal Reserve policymakers as a key tool for combatting inflation. Part of policymakers’ goal, for example, is to help cool the economy without pushing it into recession. But policymakers are finding it frustratingly difficult so far to make much progress.
Policymakers point to historically high inflation to justify higher rates
The Fed’s decision to dramatically hike rates again this month wasn’t a surprise. Policymakers have long established that they were going to continue pushing up rates for the foreseeable future as they aggressively try to tamp down persistently high inflation. Although prices have weakened somewhat in recent months, inflation is still near a 40-year-high, frustrating policymakers who had hoped to see more progress.
In a press release announcing their latest decision to further increase rates, policymakers noted that the economy is still relatively hot as summer turns to fall, with strengthened consumer spending and a persistently strong job market. However, supply chain snarls and the war in Ukraine continue to push up prices across a variety of categories, putting painful price pressure on businesses and consumers alike. As a result, “inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures.” In addition, policymakers noted, “Russia’s war against Ukraine is causing tremendous human and economic hardship. The war and related events are creating additional upward pressure on inflation and are weighing on global economic activity.”
Policymakers hope that the latest raft of rate increases will ultimately help consumers who have been buffeted by months of historically high prices. But that justification is likely to come as cold comfort to cardholders who already in debt, as well as to those looking for a brand new card.
With another major rate hike, new card APRs are destined to break more records
The Fed’s decision to dramatically hike rates once again is likely to have a major impact on new card APRs. Although lenders aren’t technically required to revise APRs on brand-new cards when federal interest rates change, most do.
Right now, the national average card APR is currently up by nearly 2 percentage points, year over year, and was already expected to keep climbing in the coming weeks as more lenders adjusted to the central bank’s last rate hike. If most lenders match the Fed’s latest rate hike, the national average card APR could climb as high as 18.91 percent this fall.
So far, nearly all big card lenders have matched the Federal Reserve’s last big rate increase from July, but not all. For example, Capital One is currently the only major lender that has not hiked rates in recent weeks. However, that doesn’t necessarily mean that they will sit out the Fed’s latest rate hike. Capital One has a notable history of bucking trends when it comes to credit card interest rates, so it’s possible they are taking a wait-and-see approach. However, they have typically matched most federal rate hikes in recent months.
Other smaller lenders, such as USAA, Pentagon Federal Credit Union and Navy Federal Credit Union, have also followed their own schedule this summer for adjusting to federal rate hikes and have sat out a number of previous federal rate increases.
But now that federal rates are up by another three-quarters of a percentage point, it’s likely those lenders will eventually push up rates themselves, along with most other credit card lenders.
Why interest rates 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 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 a rounding distance of 16 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 21, 2022
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. Reach out to your credit card issuer and try 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 due to the pandemic.