The average consumer credit card rate is 16.75% as of January 6, 2012 according to IndexCreditCards.com. With the US Bank Prime Rate at 3.25%, credit card companies are charging 13.5% over Prime. In other words, credit card companies are making big bucks off you!
The US Bank Prime Rate or “lending rate” has averaged 3% above the Federal Funds rate, which is currently at 0.25% thanks to BenGenie. The Prime Rate is used to adjust the interest rates for HELOCs, credit cards, and student loans. The Prime Rate is considered the rate at which banks lend to the most creditworthy borrowers.
With a 13.5% spread over Prime, credit card companies are essentially saying they require a 13.5% return over Prime in order to be in the business of lending credit with a card to the average consumer. If all consumers paid their credit card debts in full and never welched on a payment, the spread over Prime rate would probably be close to zero. The other way to lower credit card rates is if consumers reduce demand for credit card usage and the government either regulates more tightly and/or encourages more competition.
AVERAGE CREDIT CARD RATES
My one and only personal credit card has a interest rate of 10.25%, or a full 7% points over prime. I’ve had the card for 10 years and have never missed a payment in 120+ billing cycles. Sure my rate is still 6.5% below the average, however, compared to mortgage rates below 4% and student loan rates below 3%, 10.25% is ridiculously high.
I gave my credit card company a ring to see if they can lower the rate, even though I never plan to give them the satisfaction of making 10.25% off me, and they politely declined. Since I only have one personal credit card, I don’t easily have a backup to switch to, leading me not wanting to spend the time to apply a new.
High interest rates should discourage you from using your credit card and at the very least, never carry a balance. We know in practice, this is not the case as credit card companies earn billions a year from consumer’s lack of spending discipline. I hope as a Financial Samurai reader, you know better than to ever spend more than you earn and carry a balance.
CREDIT CARD RECOMMENDATIONS & MORE
Barclaycard® Ring MasterCard® – 1% Back on Balance Transfers – This great card has the lowest APR I’ve seen in the market today at 8% compared to the average credit card interest rate is 15%. You get 1% back on all balance transfers made in the first 60 days of opening an account and there is no annual fee or balance transfer fee. There’s a fantastic social community of Ring MasterCard holders once you join to interact with and save money.
The Hawaiian Airlines® World Elite MasterCard® – Hawaiian Airlines is hands down the best airlines in America. Their service is impeccable, they provide food, snacks, and drinks included in your air fare, and each seat comes with a USB charger. This Hawaiian Airlines card gives 35,000 bonus miles if you spend $1,000 within the first 90 days, gives you one complimentary bag to check-in, and a one-time 50% off discount off your companion’s air fare! Round-trip ticket prices range from $450 – $1,200, so that’s a $225 – $600 savings right there to paradise! You also get $100 off a companion tick for roundtrip coach travel between Hawaii and North America each year, 1 point for every $1 spent, and 5,000 annual bonus miles after $10,000 in annual spend. The annual fee is only $89. Oahu is my home state and it is the most beautiful place to vacation!
Check Your Credit Score: Take a moment to check your free TransUnion credit score through GoFreeCredit.com, a company I trust. 30% of credit reports have errors, which could put a serious hamper on your refinancing or new loan borrowing abilities. I had a $8 late payment I didn’t even know I owed crush my score by 100 points come up during my last refinance. The average credit score for rejected mortgage borrowers has risen to 729 due to more stringent lending requirements. Do you know what your score is?