The credit card with a 59.9% interest rate
Why are the interest rates charged by credit cards higher than they've been in recent years?
- Quick quiz: Do you know your credit scores?
That's the rate you'll get if you apply for a First Premier Centennial Classic credit card. The bank just abolished its lower, 23.9% annual percentage rate for new Centennial Classic customers, so all will get the 59.9% rate, CreditCards.com says.
First Premier's decision to offer only the higher rate was enough to raise the overall average APR for new U.S. credit cards to 14.69% in CreditCards.com's weekly survey, up from 14.37% last week. It's now "the second highest level on record since CreditCards.com began tracking APRs in 2007," the website says -- this while mortgage rates are at lows not seen since the 1950s. What gives?
There are two parts to our explanation.
The Credit CARD Act limits fees charged during the first year a card is in use to no more than 25% of the credit limit. To get around that rule, some cards, like First Premier's, began charging a processing fee on new card applications -- imposed before the card could be used.
Clever, eh? Now the Fed has proposed new rules to close that loophole. Thus, the speculation is, First Premier did away with the 23.9% rate because the income from the processing fee won't be available in the future.
Of course, people with good credit scores can find better rates. According to CreditCards.com, the average rate for new low-interest cards is 11.93%, compared with 12.11% six months ago. For new cash-back cards, it's 12.7%, up from 12.57%. For instant-approval cards, the current average is 16.49%, much lower than the 18.41% average six months earlier.
But why are the rates on cards so high? Banks that specialize in lending to people with poor credit aren't the only ones raising rates. For instance, Capital One recently increased the APR on new No Hassle Cash Rewards cards for people with top-notch credit, CreditCards.com said. In fact, credit card rates are high for everyone. Bankrate.com reports:
The fixed-interest rate average for credit cards has held steady for four weeks at 13.76%, but the mean variable rate continues to climb. This week it reached a new all-time high of 14.51% in the Bankrate survey, a hike of 11 basis points since last week. Variable rates have averaged above 14% since April.
It doesn't seem fair, particularly when credit card charge-offs and delinquencies are on the decline. For the sake of comparison, note that the average rate for a 30-year fixed-rate mortgage this week was 4.23%. And just how much is your savings account earning?
Credit card issuers raise interest rates on cards because they can. While the CARD Act set limits on when rates can increase, it didn't limit how high they can go. Forced to relinquish major fee revenues by the new law, issuers are going to seek that money elsewhere. Philip Shenon wrote at The Daily Beast:
Seeking to recoup the tens of billions of dollars in annual revenue they lost as a result of the new law, credit card companies have jacked up overall interest rates on plastic in the last year and slashed credit lines even for customers in good standing. Industry studies show that the average credit card interest rate is slightly above 14.5% a year, up from about 13% in 2009.
What can you do if you have a high APR and the issuer declines your request for a lower rate?
- People with good credit can qualify for a 0% balance transfer, which are more widely available than they've been in some time. "And some issuers are even rolling out deals offering zero percent interest on balance transfers and new purchases for up to a year," Bankrate says, although many charge a balance-transfer fee of 3% or 4%.
- Pay off your debt as quickly as possible, and never carry a balance again.
Also, don't apply for high-interest subprime cards.
"Look for a secured card and put the money down as a deposit for a small line of credit rather than nonrefundable fees and one of the highest credit card interest rates known to man," Linda Sherry of Consumer Action told CreditCards.com. "This is why we need a national usury cap on credit card rates."
More from MSN Money:
These are high risk people getting high interest rates. If you don't like it why don't you loan them the money.
If you "need" a credit card...Ask yourself if you want to throw away thousands of dollars for interest and a myriad of other charges. If you love to throw money away get a credit card. If not you can use a debit card for everything that a credit card is used for.
of course rates are going to go up when you cut out a fee generating source (i.e. capping fees and/or cutting overlimit charges). credit card companies do not exist as non-profits. if you cut off one way to make a profit, the companies will figure out another way to make a profit.
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