Going Up

Credit card rates are increasing despite the Fed lowering rates

Credit card debt has been on the uptick lately. According to the Wall Street Journal, households with credit card balances owed an average of $8,602 this year, up eight percent since 2015. And while you’d think the Fed’s decision to lower interest rates might halt that trend, credit card interest rates are actually increasing, not decreasing.

We’ll give you one guess as to why credit card rates are going up despite interest rates going down. That’s right! It’s money.

Consumers have grown more savvy with credit cards, smartly taking advantage of rewards programs and big sign-up bonuses. That’s good for you; bad for the card companies. Smarter consumers equals less profits for the issuers. Many companies have decided to boost profits by increasing credit card rates. The average annual percentage rate (APR) on interest-charging credit cards is about 17 percent, the highest it’s been in more than 20 years. The results are already rolling in for credit card companies. Last year, credit cards delivered a 3.8 percent return on assets to big banks who focus on cards, the first increase in five years.

While increasing credit card APRs is good business for the issuers, it can be dangerous for you. If you carry a balance on your card from month to month, the interest you’re paying is only getting more expensive. Suddenly, the balance you thought was too expensive to pay in full balloons to an even higher number. The solution, of course, is to use your credit cards wisely and pay them off in full every month. If there’s no balance, there’s no need to worry about that steadily increasing APR.

Chris O'Shea

Chris O'Shea