Credit Card Rates Climb, But Could See a Leveling Off

While credit card rates continued to climb this week, there may be a leveling off in the short term, according to the IndexCreditCards.com weekly Credit Card Monitor.

“This week, Chase became the last of the major financial institutions to hike their rates in response to last month?s federal rate increase, so rates should stay steady in the short term,” said Justin McHenry, Research Director for IndexCreditCards.com. “And with Ben Bernanke announced as Alan Greenspan’s successor as Federal Reserve chairman, many are speculating that Bernanke will be slower to push for interest rate hikes.”

Many credit cards are variable-rate, meaning their interest rates are based on a formula that includes a base rate plus a percentage tied to federal lending rates. When federal rates fluctuate up or down, credit card rates increase or decrease in response.

This week’s average credit card rates:

• Top-level consumer credit cards averaged a 9.72% Annual Percentage Rate (APR), up slightly from 9.70%. The lowest rate found for consumer credit cards with no annual fee was the Capital One Platinum MasterCard, offering a 5.9% APR.

• Top-level business credit cards, which more often use fixed interest rates, remained at an average 9.91% APR for the second straight week. The lowest rate for business credit cards with no annual fee was the Advanta Platinum BusinessCard, offering a 7.99% APR, as well as a program with travel or cash back rewards.

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

Other rates of note:

• Reward credit cards for consumers averaged a 10.85% APR, up slightly from 10.84%. The lowest APR in this group belonged to the MBNA Rewards American Express Card at 7.9%.

• Business reward credit cards took a big leap this week, with an average interest rate of 11.57%, up from 11.37%. Chase issues many business credit cards with reward programs, so their quarter-point increase is especially reflected in this category. The Advanta Platinum BusinessCard referenced above offered the lowest rate at 7.99%.

• Student credit card rates stayed steady, with an average 14.83% APR, up from 14.78%. Chase is a major influence on this category as well, with one of the larger selections of cards for students. The Wachovia Student Visa offered the lowest APR at 9.9%.

“These averages are based on the lowest rates published by the issuing credit card banks,” says McHenry. “If you don’t have excellent credit, add 2% to these averages to estimate your rate. Consumers or businesses with poor credit may 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, and Wells Fargo.