Credit Card Rates May Not Get Any Lower

The average credit card rates this week are 15%, according to the Weekly Credit Card Rate Report from CreditCards.com. Each week, the credit card comparison site computes averages credit card APRs using the most current interest rates offered by the leading credit card issuers. This week’s average rate is just a little higher than same period last year – 14.79% - and the exact same as they were six months ago.

There's some bad news: credit card rates probably won’t be falling anytime soon. That’s because credit card APRs are indirectly related to the Federal Funds rate which is already at a historic low of 0% to 0.25% and will be there for the next few years. If you’re thinking about taking a mortgage soon, this is good news. But if you’re looking for a great credit card rate, it’s not the best thing to hear.

Most credit cards these days have a variable interest rate, often tied to the Prime Rate which is 3% above the Federal funds rate. Card issuers add a margin, typically 7% or more, to the Prime Rate to come up with your credit card’s APR. The margin rate may not budge ever if you’ve already been given the lowest rate for your credit card. And, since the Federal Funds rate, and therefore the Prime Rate, is already at it’s lowest, your credit card rate may stay the same.

The better news is that having a good credit score can help you qualify for a lower credit card rate. Credit card rates are assigned based on creditworthiness and the less risk you pose, the better the APR you’ll be offered.

While your credit card rate may not get any lower (unless you’ve improve your credit and qualify for better offers or you’ve rehabilitated an account that had the penalty rate imposed), your credit card issuer will have to justify raising your rate.

By law, card issuers must give a 45-day advance notice before raising rates and the new rate, if you accept it, can only apply for balances charged after the rate increase takes effect. If you’ve had your credit card less than a year, the bank generally can’t raise your rate unless you’re more than 60 days late or your promotional interest rate expires.

Of course, interest rates are a little less important for cardholders who pay their balance in full each month. That’s the ideal way to avoid paying any interest at all. As long as you pay the entire balance before the grace period expires, you won’t receive a finance charge (assuming your credit card has a grace period).

While credit card rates may not dip in the next few years, credit card issuers are still making some attractive offers. Zero percent introductory rates are making a comeback and they’re being offered for longer periods. The Credit CARD Act requires credit card issuers to keep a promotional rate in effect for at least six months, but some card issuers offer the no interest for up to 18 months. You typically need good credit to qualify.

Credit card rewards, signup bonuses, and other perks are also being used to court new cardholders. If you find a good deal, make sure you read through the terms to understand what you have to do to earn the reward. Remember if you pay interest on a rewards credit card, you’ve diminished the value of your reward.

Source: CreditCards.com, LowCards.com