Average credit card interest rate
The median interest rate of all credit cards in the Investopedia Card Database for June 2021.
The median credit card interest rate for all credit cards in the Investopedia database is currently 19.62%, based on the average rates advertised on several hundred of the most popular card offers of the market. Investopedia’s average rate data differs significantly from the overall average credit card rates tracked by the Federal Reserve (the Fed), which was recently listed at 14.75% for February 2021, down from 14.65% at the end of Q4 2020, due to the fact that the Fed samples a relatively small number of banks and only considers the bottom of the range. interest rate range announced by card issuers. Since the average FICO credit score in the United States was 711 in 2020, compared to 703 in 2019 according to Experian, Investopedia believes that it is more accurate to follow the midpoint of the median of the advertised credit card interest rate ranges rather than the low end, as a 711 credit score would not qualify for the best available rates, such as the suggest average Fed rates.
Key points to remember
- The median interest rate available from the Investopedia database of over 300 cards is 19.62%
- Credit card interest rates are largely determined by the credit standing of the applicant
- The best credit card rates are only for those with excellent credit
Credit card interest rates are expected to remain largely unchanged for the foreseeable future, as most card issuers use variable interest rates that are indexed to the rate. Federal Reserve Prime Rate. However, the lower and upper limits of the available card rates may change from month to month depending on competitive pressures and the risk policies of each bank. After cutting rates twice in 2019 for general economic reasons, and then again in March 2020 in an attempt to use monetary policy to revive economic activity amid the initial COVID-19 crisis, the Federal Reserve is not expected to make any further changes to its benchmark federal funds interest rate and has signaled a reluctance to increase the federal funds rate for the foreseeable future, potentially until 2023. However, the continued economic impact of the pandemic and the potential overheating of the economy due to stimulus payments could increase the pressure for a rate hike at some point later in 2021 if inflation returns, despite recent guidance from the Fed. A wide variety of consumer loans, including credit cards, are linked to movements in the federal funds rate, which is the mechanism the Fed uses to boost or slow the size of lending depending on economic conditions.
Several factors influence how individual credit card rates are set, the most important being credit quality, those with excellent credit receive the lowest rates and those with no or bad credit. receive 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 shown as a range for each card product, across more than 300 card offerings, which are shown below, broken down by credit quality, card type and card issuer.
Interest rates by type of credit quality
Different ranges of credit quality may vary depending on the type of score used, but the most popular credit score used by credit card lenders is the FICO score.
Different ranges of credit quality may 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 level of credit quality:
|FICO Credit Score Ranges|
|Bad / No credit||350-579|
For those who need to build or replenish their credit, it is essential to start actively using credit responsibly, which always means paying bills on time and keeping usage below 30% of lines of credit. . 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 use of credit can produce positive results after as little as six months and build up over time.
Interest rate by type of credit card
- Awards: Credit cards that offer points, miles, or cash back on purchases
- Student: Credit Cards Designed for Limited Credit History and Student Credit Education Needs
- Secured: Credit cards that require a security deposit that serves as the initial line of credit
- Business: Credit cards designed for small business owners that offer separation of business expenses, working capital, and often rewards and discounts on business-related categories of purchases.
Interest rate by issuer
Credit card issuers have different risk-based pricing policies that cause variations in the interest rate ranges they advertise and ultimately assign to customers based on the credit scores of approved applicants.
Prime rate trend
Credit card interest rates are primarily indexed to the prime rate with a margin that varies with the level of card product and the credit standing of each account holder. The prime rate currently stands at 3.25%, the lowest level since Q4 2015, and has been adjusted downward from its decade-high 5.50% reached in Q4 2018 after the Federal Reserve’s economic stimulus measures in the third and fourth quarters of 2019 and again in March 2020. Since the last change in March 2020, the prime rate has remained unchanged.
Trend in failure rate
Credit card default rates, defined as accounts past due 90 days or more, have been below 3% in recent years and have fallen by almost 30 basis points between Q1 and Q2 and by 38 basis points. other basis points between Q2 and Q3 2020, likely due to lower card spending during the pandemic and the positive impact of stimulus payments on card debt repayment. However, default rates edged up (by 10 basis points) in Q4 2020, perhaps indicating a new inflection point in the recent positive trend.
Credit card debt trend
Total consumer revolving credit card debt fell below $ 1,000 billion in the last quarter for the first time since 2017, reflecting the impact of COVID-19 on consumer credit card spending. consumption and outstanding credit card debt. The latest monthly data from the Fed shows that the total outstanding credit card outstanding in January 2021 fell nearly $ 10 billion from the end of the fourth quarter, to $ 965.1 billion.
Investopedia tracks the rates of each credit card on more than 300 cards offered to the public by 32 of the country’s largest banks and issuers. Most credit card rates are advertised as a range from low to high depending on the credit score of the applicant. By determining the average rates by credit quality, card type, card type or card issuer, Investopedia calculates the average midpoint of the advertised interest rate ranges and also calculates the average of the lower and upper ends of the rates expressed in forks.