Interest rates on all the new credit card offers have shown a rise this week after the hike by Capital One of the interest rate on seven of its cards. The national average for APR or annual percentage rate on the new credit card offers currently touches 14.34 percent according to credit card reports. This climb has been attributed to the rate hikes by Capital One. This is the first time in 6 weeks that there has been a rise in the credit card interest rates. There have been no explicit comments from Capital One on this but the bank has said in the past that the rates are always adjusted based on the competitive landscape and the general health of the credit card market.
Another reason for raising APRs on credit cards could be to guard against losses. This comes on the back of the news from the Investors Service of Moody's that the amount of unpaid debt that banks are giving up on collecting when compared to the outstanding balances of the credit cards is as high as 10% in August. The good news though is that this amount or the charge off rate on an average is below 10% for the first time since May of last year.
A reason for the fall in charge off rate is the careful lending of banks. The improvement is largely because credit has been tightened, including stricter measures for underwriting standards and less credit available for lower credit limits too. Taking a cue from the improvement in delinquency rates, these charge-off rates are expected to drop further which would affect the future charge off trends. In other words this transforms to the fact that as more and more people pay off their debts banks would lose less money in the form of write off losses.
Although tighter lending standards are good for the bank's profits they don't augur well for the customers who on an average would have to pay more in order to return the entire amount they have borrowed. The credit card balances though are falling as per the recent consumer credit reports.