The average credit card interest rate is 16.17%.
Applicants searching for a brand-new card may find that some credit card offers are growing more expensive, according to new data from the CreditCards.com Weekly Credit Card Rate Report. This week, the national average credit card APR rose for the first time in months, after stubbornly remaining at 16.13% for 15 straight weeks.
Among the 100 cards tracked weekly by CreditCards.com, the average minimum card APR inched up to 16.17% this week after KeyBank hiked the APR on at least one of its rewards credit cards.
The lowest APR that KeyBank advertises on the Key2More Rewards Mastercard is now 16.99%. Previously, KeyBank customers with the best credit scores could secure an APR as low as 12.99% when they opened a Key2More Rewards card.
KeyBank also raised the Key2More Rewards card’s highest possible APR this week, bumping up the card’s maximum interest rate from 21.99% to 23.99%.
The rewards card’s higher maximum interest rate didn’t affect the national average credit card interest rate, though, since CreditCards.com only considers a card’s lowest possible APR when calculating the national average. However, it did cause the average maximum credit card APR to increase this week to a high of 23.69%.
Until this week, minimum interest rates on most new credit cards haven’t budged in months. However, lenders have appeared more willing lately to charge higher maximum card APRs.
For example, this is the third week in a row that the average maximum credit card APR has climbed. Last week, American Express increased the maximum credit card APR on the The Blue Business® Plus Credit Card from American Express by 2 percentage points, causing the average maximum new card APR to climb for the second straight week. The lender left the business card’s minimum APR alone, though, so the offer change didn’t affect the average minimum card APR.
Similarly, Barclaycard also raised the highest possible APR on the Carnival World Mastercard by 1 percentage point, causing the average maximum card APR to increase in the first week of February for the first time in months. But again, the national average credit card APR was unaffected by the rate hike since the Carnival card’s lowest possible APR remained unchanged.
Overall, average rates on most new credit card offers continue to be unusually low compared to where they stood before the pandemic. In mid-February 2019, for example, the average new card APR stood at 17.15%. In 2020, average rates weren’t much different, clocking in at 17.30%.
For most of the pandemic, by contrast, average rates have stubbornly remained closer to 16%. Average rates are so low today, in part, because most lenders tracked by CreditCards.com lowered APRs on brand-new cards in response to federal interest rate changes and then left those new card APRs in place for months.
Ever since the Federal Reserve pushed benchmark interest rates down to rock bottom in 2020, credit card lenders have taken an ua-cautious approach toward pricing new offers and have largely refrained from hiking APRs on brand-new cards. As a result, the national average credit card APR hasn’t climbed above 16.27% since April 2020.
However, average rates are all but certain to increase significantly in the coming months now that Federal Reserve policymakers have made clear that they are planning to gradually increase benchmark interest rates over the next year. The next rate hike could come as soon as March.
Fed pushes up rate hike timeline, portending higher card APRs
Last month, the Federal Reserve opted again to leave benchmark interest rates near rock bottom for now in order to continue supporting the U.S. economy. Economic conditions have improved substantially since the beginning of the pandemic, Fed officials noted, but economic activity continues to be weighed down by the coronavirus and other economic concerns.
The Fed is unlikely to keep rates this low for much longer, though, officials acknowledged. Inflation, in particular, has become a substantial concern as prices on many goods, including food, manufacturing materials and supplies, remain abnormally high.
As a result, the Fedâs rate-setting committee, the Federal Open Market Committee (FOMC), made clear in a new FOMC statement that it is preparing to raise interest rates much sooner than it had signaled previously.
âWith inflation well above 2 percent and a strong labor market, the Committee expects it will soon be appropriate to raise the target range for the federal funds rate,â the FOMCÂ announced.
That first rate hike could come as soon as the middle of March, which is when the rate-setting committee is set to convene for its next FOMC meeting. As usual, the Fed declined to give a firm estimate for when borrowers could expect higher interest rates. However, it clearly left open the possibility that the Fed’s next rate hike could be imminent.
If the Fed does announce a quarter-point rate hike in March, the average new card APR could climb as high as 16.38% this spring, depending on how banks respond to higher base rates. It will be the first time the Federal Reserve has increased benchmark interest rates since 2018.
The Fed’s latest statement comes on the heels of several other recent shifts in communication, with FOMC members increasingly signaling a faster timeline for hiking rates. Last December, for example, the rate-setting committee substantially revised its expectations for when it would likely increase federal interest rates, pushing their predictions for the central bank’s first impending rate hike from 2023 to 2022.
At that time, most committee members predicted that the Fed would likely hike rates up to three times over the next year, culminating in an increase of three-quarters of a percentage point by the end of 2022. Since then, some analysts have begun predicting at least four quarter-point rate hikes over the next year, which would cause the Federal Reserve’s benchmark interest rate, the federal funds rate, to increase by one percentage point.
Meanwhile, Fed chairman Jerome Powell also told Congress earlier this month that the Fed is prepared to hike rates aggressively this year if necessary in order to battle inflation.
Regardless of how soon the Fed decides to act, credit card borrowers are likely to see rates climb significantly over the next year. For example, if there are just three quarter-point rate hikes in 2022, cardholders could see average rates climb as high as 16.88% or more by December. If the Fed hikes rates at least four times over the next year, as some analysts predict, the average new card APR could end 2022 as high as 17.13% or more.
Why rates on new card offers are all-but-certain to climb soonÂ
Most U.S. credit cards are tied to the U.S. prime rate, which is directly influenced by the Federal Reserve’s benchmark interest rate, the federal funds rate. When the federal funds rate changes, the prime rate typically changes by the same amount.
Lenders are free to set APRs on brand-new cards as they wish and technically aren’t required to change the APRs when a card’s base rate changes. (On the other hand, lenders are required to match changes to the prime rate on open credit card accounts that are contractually tied to it.) Historically, most lenders do revise the APRs they advertise when the card’s base rate changes.
That’s what happened in the spring of 2020. After the Federal Reserve slashed rates by a point-and-a-half in March 2020 in response to economic softening from the coronavirus pandemic, nearly all of the issuers tracked weekly by CreditCards.com â with the notable exception of Capital One â lowered new card APRs as well. That, in turn, caused the national average card APR to plummet to its lowest point since 2017.
Since then, most new cards included in the weekly rate report have continued to advertise the same APRs they had in the spring of 2020. As a result, the national average card APR has hardly budged for more than a year, remaining within a rounding distance of 16% since April 2020.
But if the Federal Reserve does increase its benchmark interest rate this year, as currently projected, then most credit card offers are likely to follow suit. Current credit cardholders will also see their rates climb, causing their debt to become much more costly to carry.
But in the meantime, credit cardholders and new applicants are continuing to enjoy much lower rates than they could get before the pandemic.
CreditCards.comâs Weekly Rate Report
Avg. APR | Last week | 6 months ago | |
National average | 16.17% | 16.13% | 16.22% |
Low interest | 13.02% | 12.94% | 12.96% |
Cash back | 16.08% | 16.08% | 16.27% |
Balance transfer | 14.06% | 13.97% | 14.13% |
Business | 14.16% | 14.16% | 14.22% |
Student | 16.78% | 16.78% | 16.78% |
Airline | 15.61% | 15.61% | 15.51% |
Rewards | 15.99% | 15.94% | 15.97% |
Instant approval | 19.42% | 19.42% | 19.10% |
Bad credit | 25.80% | 25.80% | 25.80% |
Methodology:Â The national average credit card APR comprises 100 of the most popular credit cards in the country, including cards from dozens of leading U.S. issuers and representing every card category listed above. (Introductory, or teaser, rates are not included in the calculation.) | |||
Source:Â CreditCards.com | |||
Updated: Feb. 16, 2022 |
Historic interest rates by card type
Some credit cards charge even higher average credit card interest rates. The type of rate you get will depend in part on the category of credit card you own. For example, even the best travel credit cards often charge higher rates than basic, low-interest credit cards.
Since 2007, CreditCards.com has calculated average rates for various credit card categories, including student cards, balance transfer cards, cash back cards and more.
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How to get a low credit card interest rate
Your odds of getting approved for a cardâs lowest rate will increase the more you improve your credit score. Some factors that influence your credit card APR will be out of your control, such as the age of your oldest credit accounts. However, even if youâre new to credit or are rebuilding your score, there are steps you can take to secure a lower APR. For example:
- Pay your bills on time. The single most important factor influencing your credit score â and your ability to win a lower rate â is your track record of making on-time payments. Lenders are more likely to trust you with a competitive APR â and other positive terms, such as a big credit limit â if you have a lengthy history of paying your bills on time.
- Keep your balances low. Creditors also want to see that you are responsible for your credit and donât overcharge. As a result, credit scores consider the amount of credit youâre using compared to how much credit youâve been given. This is known as your credit utilization ratio. Typically, the lower your ratio, the better. For example, personal finance experts often recommend that you keep your balances well below 30% of your total credit limit.
- Build a lengthy and diverse credit history. Lenders also like to see that youâve successfully used credit for a long time and have experience with different types of credit, including revolving credit and installment loans. As a result, credit scores, such as the FICO score and VantageScore, factor in the average length of your credit history and the types of loans youâve handled (which is known as your credit mix). To keep your credit history as long as possible, continue to use your oldest credit card, so your issuer doesnât close it.
- Call your issuers. If youâve successfully owned a credit card for a long time, you may be able to convince your credit card issuers to lower your interest rate â especially if you have excellent credit. Reach out to your credit card issuer and ask if itâd be willing to negotiate a lower APR.
- Monitor your credit report. Check your credit reports regularly to make sure youâre accurately scored. The last thing you want is for a mistake or unauthorized account to drag down your credit score. You have the right to check your credit reports from each major credit bureau (Equifax, Experian and TransUnion) once per year for free through AnnualCreditReport.com. The three credit bureaus are also providing free weekly credit reports through April 2022, on account of the pandemic.
Source: creditcards.com