February 29, 2012
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- Average consumer credit card rate, overall market: 16.99%
- Average consumer non-rewards credit card rate: 15.03%
- Average consumer rewards credit card rate: 17.83%
- Average student credit card rate: 17.06%
- Average business non-rewards credit card rate: 14.74%
- Average business rewards credit card rate: 15.53%
The US bank prime rate remained at 3.25% in the second half of February, the same level as it's been for more than three years now. Despite this stability, interest rates on credit card offers have been on the rise overall during the past several months (see chart).
Both rewards and non-rewards consumer credit cards saw rates rise in late February, while business rewards credit card rates dropped, and business non-rewards and student credit cards held steady. This mixture of trends does not indicate a definitive direction for interest rates so much as an adjustment of risk-reward characteristics by credit card companies for various segments of the market.
However, there was one ominous trend in February which could ultimately push interest rates up for all classes of credit cards. According to the US Energy Information Administration, crude oil prices have jumped by 8.2% in the past four weeks. Inflation has been fairly mild over the past several months, but as the surge in oil prices is increasingly felt at the gasoline pump, this could start to change. Credit card companies won't want to see their margins squeezed by standing pat on interest rates while inflation is rising.
Consumer credit cards
Rates on consumer non-rewards credit cards rose by 0.12% to 15.03%, while rates on consumer rewards credit cards increased by 0.10% to 17.83%. The combination of these two moves pushed the overall average rate for consumer credit cards up to 16.99%, a rise of 0.11%, the highest average rate since IndexCreditCards.com began tracking interest rates in 2005.
The dynamic behind these rate increases is significant. As was the case in the first half of the month, credit card companies held the lowest tier of rate offers steady in the second half of February, while raising the highest tier. This means that customers with excellent credit should be unaffected by the rise in rates throughout the month.
Student credit cards
Student credit cards have remained unchanged so far in 2012, at an average rate of 17.06%.
Business credit cards
By remaining unchanged at 14.74%, business non-rewards credit cards continued the longest current unchanged streak of any credit card category. The average rate for this category has not changed since the end of November.
Business rewards credit cards have been relatively stable as well. These cards saw a slight increase in the first half of February, but by the end of the month had fallen back to an average of 15.53%, which is where they were at the end of January.
Good credit vs. average credit
As noted in the above discussion of consumer credit card offers, credit card companies are holding rates steady for customers with excellent credit, while raising rate tiers for customers with weaker credit. This pushed the spread between the lowest and average rate tiers up to 4.32%. This represents a widening of 0.11% in the second half of February, and an overall widening of 0.63% in the first two months of 2012.
This trend could represent either good or bad news for customers with weaker credit. On the surface, it seems to indicate that those customers must now pay higher interest rates on their credit card balances. However, another explanation is possible. Having shut out some customers with weaker credit by raising credit standards since the financial crisis, credit card companies may be raising their highest rate tiers to accommodate more business from those customers. This could signal credit being made available to a wider swathe of the market - but at a price.
About IndexCreditCards.com credit card rate monitor
In total, IndexCreditCards.com surveys information from some 50 different credit cards, and includes multiple credit-rating tiers from many of those cards. Examples of offers surveyed include American Express, Capital One, Chase, Citi, Discover, and other MasterCard and Visa branded cards. The information compiled not only demonstrates trends in credit card rates over time, but also indicates the different values credit card companies put on different target markets (consumer, business, etc.), as evidenced by the differences between rates for those markets.
The original article can be found at IndexCreditCards.com:Credit card rates are heading up
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