Credit Card Rates Climb Again, Latest Industry Shakeup Adds to Uncertainty

Credit card rates rose for the fifth straight week, according to the IndexCreditCards.com weekly Credit Card Monitor. In addition, the latest step forward in the Bank of America/MBNA merger, coupled with Wachovia’s announced plans to begin issuing its own credit cards, promised to keep industry averages unsteady.

"In a few months, the credit card landscape will look significantly different than it did just a year earlier," says Justin McHenry, Research Director of IndexCreditCards.com. "Bank of America will likely have swallowed MBNA, Chase has already acquired Bank One. That's major consolidation among the largest credit card issuers. At the same time, Wachovia has the potential to become a major player if it so chooses. The danger of too much consolidation could be balanced with the emergence of a large new issuer — it's hard to know at this point what it will mean for consumers."

This week MBNA shareholders voted to approve a merger with Bank of America. For a number of years, MBNA has been the issuing bank for Wachovia-branded credit cards, meaning Wachovia credit card customers are actually served by MBNA. In a related announcement on the same day as the MBNA merger vote, Wachovia and MBNA agreed to end their partnership next year, and Wachovia will begin issuing its own credit cards in January of 2006. Current cardholders of Wachovia-branded credit cards will become MBNA customers unless they switch to the new cards issued by Wachovia.

This week's credit card averages:

"Top-level" consumer credit cards averaged a 9.76% Annual Percentage Rate (APR), up from 9.74% last week and up a full quarter-point in the last month. The Capital One "Prestige" Platinum MasterCard offered the lowest published rate at 5.9%.

The top-level business credit card average rose to 9.95%, from 9.91% previously. Both the Advanta Platinum BusinessCard and the Chase Platinum Business Card offer a 7.99% APR.

IndexCreditCards.com uses "top-level" to describe Platinum or similarly designated credit cards that generally offer the lowest interest rates to eligible cardholders.

Also:

Consumer reward cards rose to an average 10.92% APR, up from 10.89% last week. MBNA offers a number of cards in this category with a published rate of 7.9%.

Business reward credit cards rose to an average 11.67% APR, up from 11.64% last week and 11.31% a month earlier. The significant jump in business reward cards versus standard business credit cards can be attributed to the fact that standard cards are more likely to offer fixed rates, while reward card rates are likely to be variable. The Advanta Platinum BusinessCard referenced above was the lowest rate business reward credit card at 7.99%.

Student credit card rates increased again, to an average 14.91% APR, up from 14.85%. The Wachovia Student Visa and the Sovereign Bank Student Card (both issued by MBNA) offer eligible students a 9.9% rate.

"These averages are based on the lowest rates published by the card issuers," said McHenry. "If you don’t have excellent credit, add 2% to estimate your rate. Those with poor credit will be offered even higher rates."

Financial institutions represented in the survey include Advanta, American Express, Bank of America, Capital One, Chase, Citi, Discover, MBNA, National City, Providian, Pulaski Bank, U.S. Bank, Wachovia, Wells Fargo and more.

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