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.
REWARDS CREDIT CARD RECOMMENDATIONS
Barclaycard World Master Card: If you are an avid traveler and looking for a travel rewards credit card, you can sign up for the Barclaycard Arrival World MasterCard with no annual fee with double the points on travel and dining and 20,000 signup miles ($200 value). Barclaycard offers $200,000 in automatic travel accident insurance, reimbursement for expenses if your bag is lost or delayed, trip cancellation coverage, and $0 fraud liability.
Discover Credit Card: Are you looking for the best credit card for balance transfers, flexibility, and rewards? Check out the benefits of the Discover it® credit card and maximize your purchasing power. You can earn 5% cash back rewards without any annual fees, over limit fees, or foreign transaction fees. Discover provides 90 day price match guarantee, 90 days return guarantee & full refund if the product is stolen within 90 days. And did you know Discover has been ranked #1 for customer loyalty for 17 years in a row? Discover it cards are accepted at over 9 million merchants nationwide and their U.S. based customer service team is available 24/7. Just remember to spend within your means!
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?