The average APR on credit card accounts in the United States has climbed to 15.14%, up from 14.75% only six months ago. In fact, cardholders with a poor credit rating are subjected to an even higher rate – 24.96% on average.
Michael Germanovsky, personal finance guru at Credit-Land.com, cautions that “High rates hurt your wallet and your credit score. FICO`s scoring algorithm detects if a consumer is making poor credit decisions-that is, getting bad credit terms, such as paying a high interest rate.”
The reason why so many issuers are choosing to up the standard rates is because they are attempting to recoup some of the revenue losses they felt over the last year as a result of the recent Federal law which restricted a lender`s ability to apply penalty rates to the accounts of consumers that are late making their payments.
Some credit card companies such as HSBC, U.S. Bank and Wells Fargo have opted to refrain from enforcing the penalty rates altogether. However, out of the 69% of issuers that still do dole out penalties, all of them have jacked up their rates, often in addition to increased late fees.
Despite how confusing it all sounds, the onus is on the credit card companies to make it comprehensible to consumers. In December the Consumer Financial Protection Bureau began working on a new standardized credit card agreement form that would outline all of the potentially tricky details in simple, easy-to-understand terms for potential cardholders affording them greater ease in comparing offers.
Knowledge is power, so if consumers can gain a more thorough understanding of the terms of the card they wish to apply for, they will be in a better position to avoid paying unnecessary fees and excessive interest charges.
“Aside from switching to a promotional credit card with low interest rate, consumers should consider improving their credit history profile, by pay bills on time and monitoring their credit reports for any negative items. You will need at list 3 credit accounts in good standing and zero negative reports from things like student loans, taxes, and medical debt, as these hurt your FICO score the most. Your interest rate depends on your FICO score, so research it well, and take steps towards improving it,” advises Germanovsky.