Average card APR climbs to record high of 16.32 percent


Kelly Dilworth

Personal finance writer
Specializing in new trends in credit

The average credit card APR
shot up again this week after multiple lenders hiked rates, according to the
CreditCards.com Weekly Credit Card Rate Report.

The average card APR jumped to a record high of 16.32 percent – more than a full percentage point higher
than where it stood at the beginning of 2017. A year ago, the average card APR clocked in at 15.29 percent.

Several credit card issuers boosted rates by 0.25 percent this week in tandem with the Federal Reserve’s
December 2017 rate hike. When the Federal Reserve hikes interest rates, lenders alter rates on most cards by the same amount.

Since December, most major issuers – including Bank of America, Capital One, Citi, American Express,
Discover and Barclaycard – have hiked rates on nearly all newly issued credit cards. Some lenders, such as Capital One, left rates alone on cards that are
reserved for consumers with poor or average credit, but hiked rates on other cards.

Rates are expected to rise again in the coming weeks as more lenders revise card offers.

CFPB: Fed hikes will continue to drive card rates higher

The average card APR has climbed significantly since December 2015 when the Federal Reserve first began
gradually increasing interest rates after a seven-year pause. On Dec. 1, 2015, for example, the average card APR registered at just 14.96 percent. By
Dec. 1, 2016, it climbed to 15.18 percent. In December 2017, it hit 16.15 percent.

Even with these higher
rates, the average amount of interest cardholders are paying hasn’t
changed much since 2015, the Consumer Financial Protection Bureau (CFPB)
found. According to the CFPB’s biennial report
on consumer credit cards, released in December 2017, the effective credit card interest rate – which measures
how much people are actually paying, rather than how much issuers are saying
they will charge – has remained relatively stable.

“Despite modest increases in
retail APRs, the average cardholder revolving a balance is not paying a higher
effective interest rate in 2016 than in 2015,” wrote the CFPB. That may be due
to more cardholders carrying a balance on cards with a promotional 0 percent
interest rate
, thus lowering the average amount of interest cardholders
are paying. It’s also possible that fewer cardholders are paying big penalty
APRs, said the CFPB.

However, the average
effective credit card rate has increased for cardholders with lower scores,
said the CFPB. “Cardholders revolving a balance in below-prime tiers saw their effective interest rate rise from 16.8 percent in 2015 to 17.3 percent in
2016,” wrote the CFPB. 

Cardholders’ effective
interest rates are likely to increase over time as the Fed continues
hiking rates.

According to the CFPB, most
changes to cardholders’ interest rates have been due to changes in the Federal
Reserve’s benchmark interest rate, the federal funds rate.

Since the CARD Act was
implemented in 2010, credit card issuers have largely left cardholders’
interest rates alone. Data from the CFPB, for example, found card issuers
re-priced accounts much less often after the CARD Act was implemented – in
part because they were sharply limited in their ability to hike rates without
giving cardholders advance notice.  

However, card issuers have
shown no reluctance to hike rates when the Federal Reserve increases its
benchmark interest rate. As a result, cardholders are likely to see substantial
rate changes in the coming years as the Federal Reserve continues to bump up the federal funds rate.

That could lead to a
substantial increase in overall debt, says the CFPB. “As of mid-2017,
approximately $672 billion in revolving balances on general purpose cards and
$48 billion of those on private label accounts are subject to variable rate
repricing,” said the CFPB. “A single percentage point increase in each rate
would carry an estimated annual cost to consumers of over $7 billion. Even a 25
basis point increase in interest rates would likely carry an annual average
cost of nearly $2 billion to consumers who revolve credit card debt.”

If cardholders continue to
pack on debt as interest rates increase, consumers with revolving credit card balances
may wind up paying as much as $24.5 billion in extra interest charges over the
next three years, said the CFPB.

CreditCards.com’s Weekly Rate Report
  Avg. APR Last week 6 months ago
National average 16.32% 16.24% 16.00%
Low interest 13.07% 12.97% 12.83%
Cash back 16.55% 16.46% 16.17%
Balance transfer 15.55% 15.46% 15.20%
Business 13.87% 13.78% 13.76%
Student 15.92% 15.82% 15.01%
Airline 16.25% 16.17% 15.90%
Reward  16.40% 16.32% 16.06%
Instant approval 18.74% 18.62% 18.39%
Bad credit 23.59% 23.53% 23.40%
Methodology: The national average credit card APR is comprised of 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.)
Source: CreditCards.com
Updated: Jan. 3, 2018

See related: Historic credit card rates chart, CFPB report: Deferred interest problems grow

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