The median interest rate for all credit cards in the Investopedia database remained at 24.37% in Jan.2024 after moving up an eighth of a percent last month.Credit card interest rates are based on average advertised rates across several hundred of the most popular card offers.Investopedia’s average rate data differs markedly from the overall credit card rate average tracked by the Federal Reserve (the Fed), which was most recently quoted to be 22.77% for Q3 2023 because the Fed samples a relatively limited number of banks and only considers the low end of the interest rate range advertised by card issuers.
Key Takeaways
– The median available interest rate for Jan.2024 from Investopedia’s database of over 300 cards is 24.37%.
– Credit card interest rates are largely determined by the credit quality of the applicant.
– The best credit card rates are reserved for those with excellent credit.
Credit card interest rates are expected to continue to adjust upward in response to Fed rate increases that began in 2022 and have continued in 2023, as most card issuers employ variable interest rates that are indexed to the
Federal Reserve’s prime rate.However, the lower and upper ends of available card rates can change from month to month depending on competitive pressures and individual banks’ risk policies.
The Federal Reserve pivoted to an aggressive policy of rate increases to its benchmark federal funds interest rate to combat rising inflation that began at the end of 2021.Specifically, due to dramatic increases in the consumer price index in Q4 of 2021 and in all four quarters of 2022, the Fed had indicated that interest rate hikes would continue to occur, though at a slower pace in 2023 as inflation moderated.
The last Fed funds rate increase was made in July 2023, for 0.25%, matching the previous increases of 25 basis points in May, March, and February of last year.Those increases were in addition to a string of 0.75% increases in the second half of 2022.As inflation has cooled over the past two quarters, the Fed announced it would keep rates steady at its most recent meeting on Dec.
13, 2023, and that it remains open to keeping rates steady going forward or potentially reducing them at its next meeting in January and in future meetings this year.Currently, 87% of interest rate traders are betting that the Fed will hold rates steady at its next meeting on Jan.31.A wide variety of consumer loans, including credit cards, are tied to movements of the Fed funds rate, which is the mechanism the Fed employs to stimulate or slow the magnitude of lending, depending on economic conditions.
Several factors influence how individual credit card rates are set, the most important of which is credit quality, with those with excellent credit receiving the lowest rates and those with no credit or bad credit receiving the highest rates.Other factors include the type of credit card and the risk-based pricing policies of the specific credit card issuer.
Investopedia tracks average advertised rates for new applicants, which are typically quoted as a range for each card product, across more than 300 card offers, which are shown below broken out by credit quality, card type, and card issuer.
Credit Card Interest Rates vs.Personal Loan Interest Rates
Interest rates for
credit cards tend to run in a similar range to those for personal loans.
Credit cards are a type of revolving credit with variable interest rates whereas personal loans are typically fixed-rate for a specific amount and repayment term.Many consumers use balance transfer credit card offers to consolidate higher-interest credit card debt.Additionally, personal loans can also be used for debt consolidation involving credit card debt and other types of consumer debt.
Debt consolidation was the most frequent use for personal loans according to a survey conducted by Investopedia in Sept.2023.
Interest Rates by Credit Quality Types
Different ranges of credit quality can vary depending on the type of score used, but the most popular credit score used by credit card lenders is the
FICO score.
Credit quality is defined according to the FICO score ranges for each credit quality level:
|FICO Credit Score Ranges|
|Excellent||740–850|
|Good||670–739|
|Fair||580–669|
|Bad/No Credit||350–579|
For those needing to build or rebuild their credit, it’s critical to begin actively using credit responsibly—which means always paying bills on time and keeping utilization below 30% of credit lines.
A secured credit card can be a good place to start if you don’t already have credit in your name.It can take time, but responsible credit use can produce positive results after as little as six months and builds over time.
Interest Rates by Credit Card Types
– Balance transfer: Credit cards that offer a promotional rate, often 0%, for a year or more.
– Business: Credit cards designed for small business owners providing segregation of business expenses, working capital, and often rewards and discounts on business-related purchase categories.
– Low cost: Credit cards designed for those with bad credit or no credit history that often have no annual fee but charge higher interest rates to offset higher credit risk.
– Rewards: Credit cards that offer points, miles, or cash back on purchases.
– Secured: Credit cards that require a security deposit that serves as an initial credit line.
– Student: Credit cards designed for the limited credit history and credit education needs of college students.
Interest Rates by Issuer
Credit card issuers have different risk-based pricing policies that cause variation in the ranges of interest rates they advertise and eventually assign to customers based on approved applicants’ credit scores.
Prime Rate Trend
Credit card interest rates are predominantly indexed to the prime rate along with a margin which varies at the card product level and individual account holder’s credit quality.The prime rate currently stands at 8.50%, having risen 525 basis points since the beginning of 2022 following several rate increases by the Federal Reserve, which ended with an increase of 0.25% in July of 2023.The next Fed rate-setting meeting will conclude on Jan.
31, 2024, and could result in one of three predicted rate decreases for the year.
Delinquency Rate Trend
Credit card delinquency rates, defined as accounts that are 90 days or more overdue, have been below 3% in recent years with a high point of 2.76% in January of 2020.However, during the pandemic the delinquency rate fell to a low of 1.48%, bottoming out in April of 2021.With the highest inflation in 40 years, caused by supply chain issues and increased consumer demand, driving higher spending on credit cards, the delinquency rate has risen significantly to 2.98% at the end of Q3 2023.This is up 21 basis points from Q2 2023 and up over 138 basis points since the beginning of the year, marking its highest level since Q1 2012.
Credit Card Debt Trend
Total consumer revolving credit card debt passed the $1 trillion mark just prior to the pandemic and then fell sharply to a low of $970 billion in Jan.
2021.Since then revolving debt has climbed back beyond pre-pandemic levels to over $1.29 trillion for the most recent quarter reported by the Federal Reserve, Q3 2023, reflecting continued strong consumer demand and credit card spending.Pent-up consumer demand coupled with supply chain issues and resulting shortages of goods and services has also fueled record inflation levels not seen since the early 1980’s.Fed increases to its discount rate charged to banks for overnight lending have a direct impact on credit card interest rates that adjust automatically, as they are pegged to the prime rate.
Methodology
Investopedia tracks individual credit card rates on more than 300 network-branded cards offered to the public from 43 of the nation’s largest banks and issuers.
Most credit card rates are advertised in the form of a range from low to high depending on the applicant’s credit score.In determining average rates by credit quality, card type, or card issuer, Investopedia calculates the average midpoint of advertised interest rate ranges and also calculates the average of the lower and upper ends of rates that are expressed in ranges.
editorial policy.
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Consumer Credit Outstanding G.19 Report.”
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