Living with credit

Confessions of a credit card rate-checker

Kelly Dilworth

If it’s been a while since you applied for your last credit card, you could be in for a shock the next time you start comparing APRs. Average rates on new card offers have ballooned in recent years — rising from an average of 11.54 percent in 2008 to just over 14.98 percent in 2013.

And, chances are, they’re just going to keep going up.

I know because I’ve been studying credit card interest rates for years. Every week, I pull up the terms and conditions for 100 of the most popular cards that are advertised online and scan the offers for changes to APRs, promotional interest rates and annual fees.

Confessions of a credit card rate-checker

Over the years, I’ve noticed a lot of patterns. (For example, issuers tinkered with terms much more frequently when the economy was rocky than they do now.) But the most distinctive thing I’ve seen is that issuers are a lot more likely nowadays to increase a credit card’s interest rate than decrease it.

In fact, in just the last year, I’ve only seen two card issuers lower the APR on a credit card that I track and keep it that way. In both instances, those were for specialty credit cards — not the general market cards that are reserved for the average cardholder.

Every general market card that I study that’s seen a lasting rate change over the past 12 months has undergone a rate hike, rather than a rate cut.

Even the two specialty cards that had their rates decreased still offered less-than-desirable terms for certain applicants. In one case, an issuer lowered the minimum APR on a business credit card by 2 percentage points, but then increased the maximum APR by 1 percentage point — widening the range of possible APRs. That made the card’s actual rate even more mysterious for new applicants, since a cardholder could wind up with an APR as low as 12.9 percent or as high as 20.9 percent — a difference of 8 percentage points.

In another case, a subprime card issuer began offering a substantially lower rate — 17.9 percent — on a card for consumers with bad credit. But it left the card’s maximum APR alone at a hefty 23.9 percent — a 6-point difference in potential rates.

APRs are higher and offer ranges are wider
That’s another widespread pattern I’ve picked up over the years: Credit card issuers are increasingly relying on extra-wide APR ranges when they post offers online. That way, they can offer the same card to a wider range of people.

The problem for applicants is the extra wide ranges make it a lot harder to compare offers online, since you won’t know what interest rate you’ll actually get until after you apply.

If, like me, you’re prone to over-optimism, you can really get yourself in trouble — which is what happened to me a few years ago when I applied for the Chase Freedom card.

At the time, I didn’t mind that there was such a wide range of possible APRs. (Right now, there’s a 9-percentage point difference between the cash-back card’s lowest advertised APR and the card’s highest APR.)

I have excellent credit apart from one 30-day late payment from 2010, so I assumed I’d qualify for a relatively low rate. Instead, I got hit with a whopping 18.99 percent APR, which is even higher than the APR on my old student card. I almost never carry a balance anymore, so the higher rate doesn’t really affect me. But it still irks me whenever I see it.

If you’ve never missed a payment, you’ll have an easier time than I did finding an affordable card. For example, the average APR for low interest cards is currently 10.37 percent. But if your credit isn’t in perfect standing, you can expect to pay a whole lot more. The average maximum APR on new credit card offers, for example, is currently 20.83 percent — just a few points shy of the average APR for people with bad credit, which is 22.73 percent.

Why so high?

Industry representatives frequently say that card APRs are much higher now because the Credit CARD Act of 2009 sharply curtailed issuers’ ability to re-price existing accounts.

For example, lenders can no longer hike your card’s interest rate at any time. They have to give you at least 45-days’ notice. And they can’t raise rates on current balances unless you’ve missed two payments in a row.

As a result, issuers can no longer swiftly change course when they think they’re going to get stiffed by a certain cardholder, according to the American Bankers Association. So they’re playing it safe and hiking APRs on new card offers instead, said the trade group in a February 2013 comment.

The good news for current cardholders is that, according to an October 2013 report from the Consumer Financial Protection Bureau, issuers aren’t hiking rates on existing cards the way they used to. So you’re much more likely to continue paying the same rate you’ve been paying all along.

The overall cost of credit has also declined significantly for many cardholders, the CFPB found, thanks to strict limits on the fees issuers are allowed to charge. So even though average APRs are higher than used to be, credit cards are typically a lot more affordable.

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