The average APR for a brand-new card was higher than ever on Wednesday, according to CreditCards.com’s latest Weekly Rate Report. Less than a week after the Federal Reserve pushed the its key rate to its highest level in decades, several credit card lenders swiftly revised the APRs they advertise online.
The average credit card interest rate is 20.93 percent.
APRs on most new credit card offers have climbed higher, faster and more frequently in the last year and a half than ever before. But even though most major lenders have already pushed up card APRs to unprecedented heights, few appear willing to skip additional rate hikes. On the contrary, many lenders continue to test how much higher new card APRs can go.
According to CreditCards.com’s latest Weekly Rate Report, several lenders, including Bank of America, American Express, U.S. Bank, Barclaycard and Wells Fargo, responded within days to the Fed’s latest quarter-point rate hike by introducing equivalent rate increases to online offers.
As a result, the average APR for brand-new cards surged to another all-time high this week, landing only 7 basis points shy of 21.00 percent for the first time since CreditCards.com began tracking new card APRs in mid-2007.
As the Fed’s target rate climbs, so do credit card APRs
Technically, lenders don’t have to follow in the Fed’s footsteps and revise APRs on brand-new cards every time benchmark interest rates change. But, historically, most lenders have routinely chosen to match the Fed’s rate hikes — often within days or weeks of the Fed’s announcement.
Over the last year and a half, Fed officials have repeatedly made history by pushing up the central bank’s influential federal funds rate 11 times in 14 months — sometimes by as much as 50 to 75 basis points at a time.
During that same period, most credit card issuers tracked by CreditCards.com have swiftly pushed up the APRs they advertise online by the same amount.
As a result, APRs on most new card offers have climbed a dizzying number of times since March 2022 when Fed officials first began their aggressive campaign to crush inflation with higher rates. But now that the Fed has pushed up the central bank’s key rate to its highest point in more than 20 years, the average card APR will likely surpass 21.00 percent for the first time ever in coming weeks.
Such a high APR maximum would be a big change from previous years when credit card shoppers rarely saw new card APRs start above 18.00 percent, let alone 20.00 percent or more. In the spring of 2022, for instance, the average card offer started APRs at just 16.17 percent. In fact, the highest weekly APR average CreditCards.com had ever recorded until last year was 17.80 percent.
In the past, new card APRs also tended to be much more stable than they are currently. For most of the past decade, the average card APR rarely changed by more than one percentage point from one year to the next. Instead, starting APRs for brand-new cards typically averaged near 15.00 to 16.00 percent for years.
As APRs grow lenders leave APR maximums unchanged
The past year’s aggressive rate hikes have led to extraordinary changes in the credit card market, particularly for cardholders with less-than-perfect credit.
Most credit card issuers have routinely increased a card’s highest possible APR as well as its lowest rate each time they have matched a rate hike from the Fed. As a result, the average maximum card APR has climbed especially high lately, with a record number of card offers now capping APRs somewhere near 30.00 percent.
Among the 100 cards tracked weekly by CreditCards.com, for example, more than a third (36 out of 100 cards) now cap APRs at 29.99 percent or higher, while over half (55 out of 100 cards) cap APRs at 28.99 percent or more. Altogether, the average maximum card APR now sits at an all-time high of 28.40 percent and is on track to keep increasing.
Until last year, by contrast, such high APRs were all but unheard of on all except for a handful of subprime and gas credit cards. However, even though APRs on many cards are still growing in tandem with higher benchmark interest rates, some lenders appear to have finally hit their limit with just how much more interest they will charge on certain cards.
This week, several lenders that opted to match the Fed’s latest rate hike, such as Barclaycard, American Express, U.S. Bank and Wells Fargo, decided to leave already-high maximum APRs on certain cards unchanged. For each of the cards with uneven rate increases this week, their maximum APRs were already set at 29.99 percent. So, the lenders appear to have decided that pushing the cards’ APR caps past 30.00 percent would be a step too far.
Currently, 14 of the 100 cards tracked by CreditCards.com cap APRs at 30.00 percent or higher. But only six cap APRs above 31.00 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 2, 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.