Credit card use is on the rise again, as Americans turn to plastic to charge their purchases at a record rate.

In fact, our collective credit card balances rose by $887 billion in the second quarter of 2022 alone. Yikes!

That’s understandable considering the rising toll of inflation, as just about everything we buy day-to-day has jumped in price, from food to gasoline to clothes and more. Looking for some budget relief, US households are running up credit card debt to accommodate inflation and other economic turbulence.

But that reliance on credit cards very well could come back to bite us. With the Fed raising its benchmark interest rate again and again to fight inflation, one of the biggest effects will be an increase in our credit card rates, too.

The vast majority of credit card rates you pay are adjustable based on the fed rate or some other financial index that goes up or down. And with the Fed bumping rates at a frenetic pace, guess who will see their credit card interest rate – and monthly payment – shoot sky high as well? That’s right – you!

And with a significant increase in the amount of credit card debt we’re running up, the monthly payment jump is set to really hurt consumers going forward.

So, it’s critical that you do several things to protect your family’s finances. Of course, paying off credit card debt or minimizing the use of debt is critical. But to minimize the sting of rising rates, it’s essential that consumers focus on improving their credit scores as well.

Today we wanted to bring you the state of credit card interest rates around the culmination of 2022 and headed into 2023. We’ll also reveal the typical credit card interest rate according to credit score, which is all the incentive you need to call Blue Water Credit and boost your score!

According to Federal Reserve data, the average credit card interest rate is 16.65% (as of Q2 2022). While that’s the average (and pretty high already!), different credit cards may offer much higher or lower rates. Remember, too, that what really matters is the APR you’re paying, or Annual Percentage Rate.

How much can a credit score boost save you when it’s time to make a credit card payment? Or, another way of looking at it; how much will your stubbornly low credit score cost you over time?

Let’s look at data from the Consumer Financial Protection Bureau’s report, The Consumer Credit Card Market, which is updated every two years.

(For reference, FICO Scores – the most common credit scoring model – run from 300 to 850.)

 

 

As you can see, a substandard or less-than-average credit score translates to significantly higher credit card rates.

It’s also worth noting that most of this report’s data is from 2020 or 2021, when credit card rates were generally much lower.

Consumers can and should expect the interest rates on this charge to increase significantly in 2023 in response to Fed rate increases.

Other findings from the CFPB report:

·       Premium credit cards usually bring a higher APR

·       Airline and travel cards come with a higher interest rate

·       Cash back credit cards typically start out with higher interest rates than the average credit card, but less so than cash back reward cards

·       Credit cards popular among (and geared towards) college students also come with higher-than-average interest rates

Remember, too, that these interest rates and APRs only apply if you have an unpaid balance. Pay off your purchases and charges on time every month, and you’ll avoid the huge financial toll of paying interest on your balances.

And if you have sizable credit card balances and would like to hear about your options to save by improving your credit score, please contact Blue Water Credit!