Interest rates are now hovering near record highs, at an average rate of 14.72 percent. And if your credit is bad enough, you could even end up with a rate as high as 59.9 percent APR.
That’s because while the CARD Act helped crack down on certain fees and requires more disclosures, it didn’t cap every credit card holder’s worst enemy: interest rates.
Sure, the new rules prevent banks from raising most interest rates retroactively, but there’s no limit on the rates they can charge new customers.
“Rates are going up because card issuers know that once you get a card they can’t raise the rates, so they’re raising rates on the front end to ensure they get the revenue from that interest,” said Beverly Harzog, credit card expert at Credit.com.
APRs have climbed more than 20 percent over the past two years and hit an all-time high of an average 14.78 percent in mid-November, based on weekly data CreditCards.com collects from 100 of the nation’s top credit card issuers.
And there’s no end in sight. While interest rate caps have been proposed — including a proposal earlier this month from New York Congressman Maurice Hinchey that would limit rates at 15 percent — none have been passed into law so far.
So what do record high interest rates mean for you? If you have a terrible credit score, opening a credit card is going to be painful. Though rates vary depending on the card you apply for, with a score below 599 you’ll likely be stuck facing an APR of 24 percent or higher, said Harzog. If you can get a card at all.
In fact, First Premier Bank offers a Gold MasterCard with a whopping 59.9 percent rate for those people with “less than perfect credit”, according to its Web site. And that rate is actually down from the 79.9 percent rate it originally charged.
Even with a credit score between 600 to 649 — still considered poor, but not terrible — you’re probably looking at rates around 20 percent.
Harzog recommends staying away from interest rates above 20 percent and instead getting a secured card from a lender like Orchard Bank as a way to build up credit so that you can eventually get a card with a decent rate.
With a secured card, you deposit money into an account and can use the card like a credit card — and it impacts your credit just like a credit card does. But if you don’t make payments, the bank will just take your own money out of the account.
“I don’t suggest people ever carry a balance at such high interest rates,” Harzog said. “A secured card is like a credit card on training wheels, so it will help you get your credit back on track.”
With a credit score between 650 and 699, you’re on your way to finding better interest rates, likely ranging between 15 percent and 19 percent.
Capital One’s Classic Platinum is a good option for people with fair credit. Its rate starts at 17.9 percent, with a 0 percent introductory APR until October.
But because 17.9 percent is still a pretty high rate, Harzog suggests using the introductory rate as a cushion to get your balances paid off. That way, once you hit 17.9 percent, you’re not financing anything and you can simply use the card as a way to build your credit and look for a better rate.
If you have what is typically considered a good score — between 700 and 749 — you should be able to get rates between 13 percent and 15 percent depending where you fall in that range. Meanwhile, an excellent score — 750 and up — will qualify you for the lowest rates out there.
The Chase Sapphire card offers an ongoing APR of 13.24 percent for excellent or good credit, while the Citi Platinum Select MasterCard comes with a starting rate of 11.99 percent and a 0 percent APR on purchases for the first 12 months.
If your credit is squeaky clean, check out the 7.25 percent Simmons Visa Platinum card from Simmons First Bank, which is located in Arkansas but serves customers nationwide. Pentagon Federal Credit Union’s PenFed Promise Visa card is another good option, with an ongoing rate of 9.99 percent and only 7.49 percent for the first three years.
“If you have excellent credit, you have some really great choices,” Harzog said. “But once you get down to the bad levels you’re going to have to go with those really high levels of 24.95 percent.”
Meanwhile, banks pay 0.1% on their deposits that they are lending at these astronomical rates.
The moral–don’t use a credit card as a loan. Pay it off each month. Also, that’s the only way you get excellent credit.
Amen brother…. I haven’t had credit card debt in nearly 2 decades.
Haven’t had a card other than the required corporate card in 6 years….haven’t missed the things either. It’s amazing most people are willing to stay in these financial torture chambers all their lives.
Wow, he totally missed credit union credit cards…mine is a Visa with 8.8%interest (went down last month), no yearly fee. Car loads at 4% interest. Oh, credit unions have execellant customer service too. Just a thought.
Unintended consequences of the “Consumer Protection Act”. All of a sudden pay day loans @ 20% are a good deal for someone who has an unforseen expense and no longer has access to credit.
i think the more prudent time issue is why waste your time with the lies politicians tell you.? Why do you suckers still think they work for you and live in a democracy? You can chip away at old ideas for 10s of years. and never make a dent in them.. Politicians work for big wall street money. NOT YOU. can this article get this any clearer?
If “Joe1″ thinks banks are money machines, then perhaps he should buy stock in one. Except, it seems that many banks are losing money– because, too many of their loans are going bad.
Of course, credit card debtors are self-selecting: few rational people are going to borrow money at 20% or more unless they’re either desparate or undisciplined. And, lenders are not stupid: they know that borrowers who are irrational, desparate, and/or undisciplined are going to have high default rates.
Then again, our politicians could “rescue” us by setting a cap on credit card interest. If they did, the effect would be that credit cards would be available only to those with perfect credit, and even these would pay hefty annual fees for them. Common people would have to carrying around a wad of cash.
And perhaps they’d be better off, but, apparently they (we) don’t think so– otherwise we’d cut up all our credit cards.
“Rates are going up because card issuers know that once you get a card they can’t raise the rates”? I have a credit card with 6.99% interest rate and just got a letter telling me the rate is going up to 13.99% after February 21st! I have excellent credit and always pay more than the minimum payment, so don’t understand how they can just raise it like that!
@Sharon, who wrote: “I have excellent credit and always pay more than the minimum payment, so don’t understand how they can just raise it like that!”
You can’t understand? What don’t you understand? They do it because they can. They do it because it’s part of the game to trick you into debt service. You just got “chump” added to your resumé.
It’s called usury, look it up.
It is obvious you all have a very short memory. In the late 70s credit card rate were capped at 18%. At the time, though, the prime rate was something like 19% and the banks howled that they were losing money so the government lifted the cap. When the prime rate fell, however, the banks did not lower their rates. Of course, back then you also normally had credit limits of $5000 at most. Then the neo cons got in and everything went to hell in a hand basket. As a society we lived on credit because we weren’t getting real pay raises. It made us feel rich. We identified with the rich. We borrowed against our houses and said, “See how wealthy we are” when in fact the day of reckoning was coming. Now, after the fallout we still won’t recognize that we have little in common with the folks that make the top 1% of income. Banks may be losing money but I bet you the bankers are among those top 1%. When will the American public wake up. Government isn’t the problem, it is the solution. The enemy consists of all the multi-national corporations who have shipped our jobs overseas.
Every credit card executive should be sent to prison, although a toasty place in hell awaits them in any case. People, tear up your cards and never get another. I have seen more families destroyed by these soulless parasites and it is a MAJOR reason the US is in such bad shape. If the government really cared about the average American, they would place severe limits on the credit card industry, as this is as detrimental to the health of America as cigarettes. I am normally a free market Republican, but these vampires have been allowed to get away with way too much. With the profits banks are making with credit cards, I will become a Democrat if they can be monitored more closely.
What is not addressed here is department store card interest. My wife and I have a couple we are paying-down, because one has a 22% APR. If we can get a great mark-down of 70% or more (and it’s possible), then we are saving money. Any “discount” under 25%, however, is just eaten-up in interest payments. Don’t just blame the banks—your favorite merchant can be usurious, too.
actually innocent i do. Why not get something back from crimminals? I sure cant fight it, and our paid off government wont.So much for Fank/Dodd. Seems they are paying themselves 135b in bonuses, borrowing at near zero rates from you the taxpayer.Shall i go on? In the meantime blankfein just got a sweet raise.Oh and Pandit got a mere 75% raise, all for failure. For the record innocent. i have perfect credit and little debt yet my card inexplicably went up to 23%..Corporate geed knows no limit! I encourage all. you want to get back at these crooks dont hold a balance.