Following in the Fed's Footsteps, Average Credit Card Rates Jump to 15.05%

As far as credit card rates are concerned, for most people the good times may now be heading towards an end. According to the CreditCards.com Weekly Credit Card Rate Report, interest rates on new card offers rose to 15.05% last week. This increase marks a one-year high, and follows in the footsteps of the Federal Reserve – which recently hiked rates for the first time since 2006.

The 15.05% average consists of 100 of the most popular credit cards in the country. It includes cards from dozens of leading U.S. issuers and represents cards in every category. Introductory rates however, are excluded from this calculation.

When the Federal Reserve raises interest rates, issuers are permitted to pass on those rate increases to cardholders without giving prior notice. The week’s rate change was propelled by Barclays, which increased the APR on the Wyndham Rewards Visa Signature card. Online applicants are now offered an APR ranging from 15.24% to 19.99%. Previously, the APR offered by the card was as low as 13.24% for some applicants. Among the 100 cards tracked by CreditCards.com, 25 advertised slightly higher rates last week. American Express, Wells Fargo, U.S. Bank, Huntington Bank, Key Bank and Comerica were among the other issuers that increased rates by 0.25%. Capital One increased interest rates just a few days before the Federal Reserve’s announcement.

The rate increases have been in the cards for some time now (the Fed has been planning to increase interest rates since 2014!), but this has not deterred U.S. cardholders from packing on more and more debt. According to Experian’s Market Intelligence Brief, the total amount of debt consumers owe on their cards rose to $650 billion in the third quarter – a level not seen since late 2009. While this indicates that consumers these days have become more comfortable with charging larger purchases and carrying bigger balances on their cards, there is also evidence that most cardholders are keeping up with their obligations and paying their bills on time. Late payments by 60 days or more have decreased by more than 70% since 2009, and currently rest near record lows.

The low number of late payments, in turn, have encouraged issuers to increase credit limits by more than 100% since late 2009 – and approve more cardholders with low scores. At the same time, they have also beefed up their marketing efforts by flooding consumers’ mailboxes with new offers.

According to the financial services group Credit Suisse, issuers mailed 332 million card offers in November. That’s 3% more than what was mailed the previous year! While the total number of card offers mailed this year is expected to be smaller than in 2014, mail volumes for consumers are likely to increase considerably next year to at least 4 billion card offers by the end of 2016 – a direct result of issuers competing more aggressively for new cardholders.

So in 2016, be prepared for credit card rates that touch new heights and mailboxes that overflow with offers from credit card issuers. While some of these offers may be worth considering, it cannot be denied that most will come attached with the tag of higher costs and fees.

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