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CompareCards Credit Card Debt Report – September 2018

CompareCards Credit Card Debt Report – September 2018

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This article was last updated Sep 22, 2018, but some terms and conditions may have changed or are no longer available. For the most accurate and up to date information please consult the terms and conditions found on the issuer website.

Average Credit Card Interest Rate Highest In 20 Years

Highlights

  • The average annual percentage rate (APR) consumers pay on credit card debt is 15.54%.
  • Credit card rates have been increasing more than other types of consumer loan rates.
  • Revolving credit balances continue to increase. Collectively, Americans carry $999 billion in credit card and other revolving debt, a $16 billion increase over the previous month.
  • Consumer borrowing continues to increase at about a 5%-6% annual rate.
  • Nationwide, credit health has nearly returned to pre-Great Recession levels, based on a number of revolving credit metrics.
  • Delinquency rates remain relatively modest.

Credit card APRs increases to 15.54% highest in 20 years

Based on the latest Federal Reserve survey of credit card-issuing banks and credit unions, the average APR on credit card accounts assessing interest has increased to 15.54%. That’s the highest it’s been since 1998, when the average APR was 15.73%. Most of the recent increase (up 0.22 percentage points from the previous quarter) resulted from the increase by the Federal Reserve of the federal funds target rate, which in turn raises the prime rate that most credit card rates are based upon.

But even though the average APR of about 15.5% is the same as 20 years ago, there’s one big difference between them: 20 years ago, the prime rate was 8.50% — meaning consumers paid about 7 percentage points more for the privilege of revolving credit. Compare that with today: Even with the recent spate of Fed-induced increases, the prime rate is only 5.00%, and consumers now pay an additional 10.5 percentage points more on their credit card balances. Indeed, for most of the decade, the spread between the prime rate and the average APR consumers pay on their revolving credit card balances has been around 10 percentage points.

Credit card rates increasing more than auto and mortgage rates

Since the Federal Reserve began raising short-term interest rates in 2016, borrowing rates for consumers have also increased, but not in lockstep. Credit card APRs most closely hew to the federal funds rate, typically rising (and falling) in tandem. But other types of consumer loans, like auto loans and mortgages, aren’t as directly related. Since the first Fed rate hike in December 2015, average credit card APRs have increased nearly 2 percentage points, while new car loans increased by 1 percentage point. Meanwhile 30-year fixed-rate mortgages have only increased by 0.6 percentage points during the 18-month interval.

Credit card balances march toward $1 trillion and beyond

Meanwhile, revolving credit balances continue to increase. In May, the total amount outstanding on credit cards increased by $16 billion to $999.2 billion. That’s a 4.6% increase over the total May 2017 revolving debt balance of $948.2 billion.


While a somewhat smaller annual increase than previous months, it still confirms the steady accumulation of credit card debt.

Credit profiles continue to improve; delinquencies modest

Despite the increase in credit card and other revolving credit balances, overall American credit users have improved their standing since the recession, as measured by a number of metrics.

First, the percentage of the “credit economy” (defined as those adults with an Equifax credit score) with either a credit card or a home equity line of credit has increased to 73.1%, the highest since 2008. Second, the percentage of the credit economy with low credit utilization — people who use less than 30% of their total credit limit — now exceed 40% for the first time since 2008. Finally, more than half of the credit economy currently has an Equifax Risk Score of 720 or greater. At 51.9%, the percentage of these “prime borrowers” is at its highest level in at least 10 years.

Credit card delinquency and charge-off rates remain low, despite the raise in revolving balances and a greater percentage of Americans using credit cards, as well as a sharp increase in credit card interest rates. Both credit card and delinquency rates are below levels of four years ago.


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