CreditCards.com recently reported a slight hike in the national average APR for new credit card offers, a negligible bump of 0.01%. Despite the eye-catching headline - it's the highest rate since December - interest rates have been and will likely remain generally stable until March. As banks plot their course for the year, interest rates tend to enter a hibernation period and remain essentially unchanged through February.
Six Months Ago
The interesting portion of CreditCards.com's weekly rate report is its six-month comparison. Since August, the national average APR bumped up by four-tenths of a percent. But that increase was not distributed evenly across all types of cards.
Low-interest credit card rates actually dropped almost 0.1%, and student credit cards showed a dramatic decline from 14.49% to 13.42%. All other categories remained more or less unchanged, except for one: bad credit.
The interest rate for those with poor credit histories skyrocketed almost 4%, from 21.04% to 24.95%. A thin-file borrower, or one with a limited credit history, is significantly worse off today than he was in August of 2010.
Why the Hate?
We've said it before and we'll say it again: the Credit CARD Act drove up interest rates for borrowers with bad credit. The law banned excessive overdraft fees and unannounced rate hikes, but set no limits on how high the initial rates could go.
According to credit card expert Beverly Harzog of Credit.com, "Rates are going up because card issuers know that once you get a card they can't raise the rates, so they're raising rates on the front end to ensure they get the revenue from that interest."
Rehabilitate Your Credit Score
The good news is that borrowers with decent credit have it easier. You should focus on building up your credit score, perhaps with an unsecured credit card with low fees, if you qualify. If you can't qualify, try to get a secured credit card that will require you to post collateral, but stick with a credit union or large national bank that won't charge absurd fees. Try to avoid prepaid debit cards that are basically fee-generators. These typically won't help your credit at all, and they cost an arm and a leg.
You may also be able to build a credit history without plastic. Not too long ago, credit reporting agency Experian started including rent payments in its credit reports. While that's not specific to your FICO score, having a solid Experian score can only help. So by paying your rent on time, you should be able to boost your credit and move on to lower rates. Rent can be a double-edged sword though: missed payments or lost security deposits will show up as well.
Make your credit score a priority, as a good FICO score will make everything from credit cards to mortgages to insurance premiums better for you. If recent trends continue, a low credit score is only going to get more and more expensive.