credit card rates rise
By AnnaMaria Andriotis

Borrowers continue to pay record low rates, with one major exception: credit cards.

Rates on student credit cards hit 16.3% on average during the second quarter of 2012, up from 15.8% during the previous quarter and 15.9% a year ago, according to new data from CardHub.com, a credit card comparison web site. Banks have been raising rates on credit card users of all stripes over the past year, but consumers with no credit histories or poor credit scores saw the biggest increases. Rates on "secured cards," which require borrowers to pay a security deposit in order to get a line of credit, now average about 19%, up from 17.7% in the first quarter.

Rates for consumers with excellent credit scores averaged nearly 13% during the second quarter. That was unchanged from the first quarter, but up from 12.7% a year prior. Merchants, meanwhile, are pushing for the right to charge customers extra for credit card purchases, The Wall Street Journal reported Monday.

Financial advisers say consumers should rely on a mix of payment methods in light of rising credit card costs. They suggest shoppers pay mostly with cash and limit credit cards use to purchases which can be paid off in full each month.

These higher credit card rates come as rates on other types of loans are at historic lows. For example, rates on 30-year mortgages average 3.76%, according to HSH Associates, a mortgage-data firm. Rates on many car loans also remain in low single-digit territory. The reason for the discrepancy, says Keith Leggett, vice president and senior economist at the American Bankers Association, is that credit cards still present more risk than most other types of loans. Most credit cards are unsecured, meaning lenders can't reclaim an asset if borrowers stop paying their bills. In contrast, banks take back homes and cars when those loans aren't paid.

In addition, banks have been offering more credit cards to riskier borrowers since last year, which has led to an increase in the average credit card rate.

Another contributor: incentives. Credit card issuers have been expanding their 0% interest-rate offers on purchases and balance transfers, and to make money they're raising the rates they're charging after the promotional periods end, says Odysseas Papadimitriou, chief executive at CardHub.om. The average length of 0% introductory offers on balance transfers and purchases lasted around 10 months during the second quarter, up from seven to eight months a year prior, according to CardHub.com.


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27 Comments

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vlady1000

I really do not understand how so many view credit card usage. I was raised, if you do not have the money (or the money to pay it off in full every month), then you simply cannot afford it yet (you save for it). Three generations, on both sides of our family, has never paid a dime in CC interest and none are the "1 percenter's"

July 12 2012 at 1:03 AM Report abuse rate up rate down Reply
lcvickers8

OBAMA IS DOING JUST WHAT HE SAID WHEN HE WAS ELECTED, HE IS CHANGING AMERICA.
WHY DON'T YOU SEE THAT? THAT MEANS WE CAN SPEND MORE ON THE PEOPLE, INSTEAD OF THE BIG COMPANIES, WHY CAN'T NORMAL PEOPLE SEE HIS RATIONAL VIEW.

July 11 2012 at 2:05 PM Report abuse -1 rate up rate down Reply
lcvickers8

put your money on your debit card and see how often you spend it......NOT A CREDIT CARD.

July 11 2012 at 2:00 PM Report abuse -1 rate up rate down Reply
jesuaphn

Simple solution. Stop using credit and see how quickly they will lower the rates.

July 11 2012 at 1:45 PM Report abuse +1 rate up rate down Reply
kernall

If everyone would quit using credit cards I think we would see a big drop in the interest rates. Probably only temporary. They think they have us over a barrel and they do as long as we use their cards and pay their high rates. We should not be paying more than 5 per cent for credit these days. QUIT using their cards if you cannot pay off the balances each month!!!

July 11 2012 at 1:26 PM Report abuse +1 rate up rate down Reply
ctheleroys

Higher Rates?? Are you fricking kidding me?? Is the middle class not suffering enough already?? Oh I forgot...we the tax payer got to bail out the banks while they continued to pay BIG bonuses to the CEO. Of course they now want our blood too. Hey, guys at the top. We have all had to take salary cuts and it is HIGH TIME you do too!!

July 11 2012 at 12:40 PM Report abuse rate up rate down Reply
mclkarim

"Credit card issuers have been expanding their 0% interest-rate offers on purchases and balance transfers, and to make money they're raising the rates they're charging after the promotional periods end"

There is no such thing as 0% credit card interest rates. When you use a special offer on purchases and balance transfers you will have to pay a "fee" for that, usually a percentage of the amount involved. Granted, those fees are a lot less than the standard interest rates, but they are fees none the less.

July 11 2012 at 12:39 PM Report abuse rate up rate down Reply
wrestleprocbt

From what I have heard through many banking friends is that the absolute worst bank to deal with is Bank of America, for credit cards and home loans. Ironic there name is the "Bank of America". Doesn't seem to me they are helping anyone in America!

July 11 2012 at 10:46 AM Report abuse rate up rate down Reply
mccglf

2 solutions for everyone:
1) Don't use credit cards.
2) If you DO use them, pay your bill completely and on time.

Then none of this matters.

July 11 2012 at 10:18 AM Report abuse +3 rate up rate down Reply
dgrif0613

there use to be laws in most states called"usury" laws which capped interest a lender could legally charge. Bank lobbies, with the help of politicains have incrmentally had these laws dismantled, now banks are using the "great recession" as a reason to deny perfectly credit worthy people traditional and historically low cost forms of credit, forcing them into much more expensive and more profiable consumer credit. People need to wake up

July 11 2012 at 8:38 AM Report abuse +1 rate up rate down Reply