Credit card interest rates can vary significantly depending on factors like your credit score, the type of card, and the issuer. Knowing the average credit card interest rate and how your rate compares can help you make smart financial decisions. Let’s dive into the latest data on credit card APRs for May 2024.
Average Credit Card Interest Rate in May 2024
According to data from Forbes Advisor, the average credit card interest rate is 27.65% as of May 27, 2024. This is a comprehensive average that includes airline, hotel, cash back, 0% APR, balance transfer, student, and business credit cards.
It’s important to note that this is just an overall average. Your actual APR could be higher or lower depending on your creditworthiness and the specific card you have.
READ ALSO: Guide to Understanding Credit Scores and Credit Reports
Credit Card Interest Rates by Credit Score
One of the biggest factors that impacts the interest rate you’ll get on a credit card is your credit score. Here’s a look at the approximate APR ranges you might see based on your FICO credit score:
- Superprime (740 and above): 16%-18%
- Prime (670-739): 20%-22%
- Subprime (580-669): 22%-24%
- Deep Subprime (579 and below): 24% and above
As you can see, having an excellent credit score in the “superprime” range can qualify you for much lower APRs compared to those with poor or fair credit. This underscores the importance of building and maintaining good credit.
Different Credit Card APRs
When you applied for a credit card, you may have noticed there were different APRs listed for different scenarios. Here’s a quick overview of the common types of APRs:
- Purchase APR: This is the ongoing interest rate charged on new purchases when you carry a balance.
- Balance Transfer APR: The APR applied to balances transferred from other credit cards or loans, often with a 0% promotional rate for 12-18 months.
- Cash Advance APR: The interest rate charged when using your credit card for a cash advance, typically higher than purchase APRs.
- Penalty APR: Some issuers charge a penalty interest rate (potentially 29.99% or higher) if you miss payments or violate the terms of your agreement.
- Introductory APR: Many credit cards offer a promotional 0% APR period on purchases and/or balance transfers for new cardholders, typically for 12-18 months.
Average Interest Rates by Credit Card Type Forbes also breaks down average APRs across different credit card categories:
- Low-interest credit cards: 21.25%
- Credit cards for those with bad credit: 25.82%
- Business credit cards: 19.09%
- Balance transfer credit cards: 23.15%
- Cash back credit cards: 25.82%
- Travel rewards credit cards: 24.71%
- Student credit cards: 23.06%
As you can see, low-interest cards and business cards tend to have lower average APRs, while subprime “card for bad credit” and cash back cards are on the higher end.
READ ALSO: APR vs APY: Demystifying Interest Rates on Credit Cards
Why Credit Card Interest Rates Matter
While some credit card users religiously pay their statement balances in full each month to avoid interest charges, many Americans do revolve balances from month to month. For these folks, the credit card APR is extremely important as it dictates how much interest they’ll pay on carried balances.
To illustrate, imagine you have a $5,000 balance on a card with a 22% APR. If you only make the minimum payment of $185 per month, it would take over 3 years to pay it off, and you’d pay around $1,850 in interest charges!
On the other hand, if you secured a credit card with a lower 16% APR and paid $185 per month towards that same $5,000 balance, you’d pay it off 8 months sooner and only owe around $1,300 in interest – a $550 savings.
This simple example shows how getting the lowest possible APR can allow you to become debt-free faster and save money in the process.
How to Get a Lower Credit Card Interest Rate
If you’re paying high interest rates on your credit card balances, there are some potential ways to score a lower APR:
- Apply for a balance transfer credit card with a 0% introductory APR on transferred balances, giving you 12-18 months of interest-free payments on your debt.
- Use a debt consolidation loan to combine high-APR credit card balances into one loan, ideally with a lower fixed interest rate.
- Call your credit card issuer and ask for a lower APR, especially if your credit has improved or you’ve seen better offers elsewhere.
- Make an effort to improve your credit score by paying bills on time, keeping balances low, and letting your credit age – this can help you qualify for better rates on new cards.
Following strategies like these to lower your credit card interest rates can provide significant savings as you pay down debt.
Average Credit Card Interest Rate Trends
Data from the Federal Reserve shows the average credit card interest rate on accounts charging interest was 22.63% as of February 2024. This average, which is compiled from banks’ reported credit card rates, has remained relatively steady over the last 12 months after climbing during 2022 and early 2023 as the Fed aggressively raised its benchmark rate.
Investopedia reports that the median advertised credit card interest rate for May 2024 is 24.37%, marking the fifth consecutive month that this metric has held steady following a 0.25% increase in late 2023.
While rates have stabilized recently, the overall trend over the last few years has been rising credit card interest rates across the board.
Issuers set their APRs based on their individual risk models and the prime rate, which is directly influenced by changes to the Federal Reserve’s federal funds rate. As inflation remains an issue, the potential for further Fed rate hikes later in 2024 could push average credit card APRs even higher.
Credit card rates compared to other loan types
While credit card interest rates may seem high, especially for those with subprime credit, they are actually quite comparable to the average APRs charged on other consumer loan products like personal loans. According to the latest data from the Federal Reserve:
- 24-month personal loan rates average 11.94%
- 36-month personal loan rates average 12.53%
- 48-month personal loan rates average 12.66%
Of course, the rate you’ll qualify for on a personal loan depends heavily on your credit score and income, just like with credit cards. In general, though, personal loan APRs tend to be lower than credit card purchase APRs, especially for longer loan terms.
Tips for Managing High-Interest Credit Card Debt
For those struggling with high-interest credit card debt, here are some tips that can help you get it under control:
- Use balance transfer cards to consolidate debt to a 0% interest rate for 12+ months
- Consider a debt consolidation loan or home equity loan/HELOC to combine balances into one fixed, lower interest payment
- Negotiate with issuers for a lower APR or switch to a low interest credit card
- Automate debt payments each month to ensure you never miss a due date and incur penalties
- Create a paydown plan using the debt snowball or debt avalanche methods to efficiently eliminate debt
- Look for ways to increase income through a side job or gig work to put more towards balances
- Only use credit cards for new purchases if you can pay in full; otherwise use cash/debit
Reviewing strategies like these can put you on the path to becoming debt-free even if you’re dealing with high interest rates.
Conclusion
The average credit card interest rate of around 24-27% may seem high, but it’s a rate that millions of Americans are currently paying on their credit card balances. Your actual APR could be much higher or lower depending on factors like your credit score and the type of card you have.
Regardless of the current averages, one thing is clear – carrying high interest credit card debt can severely hinder your finances and ability to save money long-term. Taking steps like improving your credit, transferring balances to low APR cards, using consolidation loans, and making a plan to pay down debt can help minimize the impact of high interest rates.
Of course, the best strategy of all is to avoid paying interest altogether by paying your full statement balance each month and treating credit as a payment tool rather than a loan. For those who cannot escape interest charges at the moment, shopping around for the lowest APR possible can save hundreds if not thousands of dollars on the journey to becoming debt-free.
READ ALSO: The Definitive Guide to Building Credit with Your First Credit Card in 2024
FAQs on Average Credit Card Interest Rates
What is a good interest rate for a credit card?
A “good” credit card interest rate is under 16%, though the very best rates fall under 12% and are reserved for those with excellent credit scores over 800. Anything under the current average APR of around 24% could be considered a decent rate.
Why do credit card companies charge such high interest rates?
Credit card debt is riskier for lenders than other loan types because it is revolving credit without a set payoff date, There are no assets secured as collateral. Card issuers charge relatively high APRs to account for this risk.
What is considered a high interest rate for a credit card?
Most financial experts consider credit card APRs over 20% to be on the high side. Once you get over 24-25%, you’re looking at very high interest rates that can make carrying balances extremely expensive.
Why do some people get much lower credit card interest rates than others?
Credit card issuers determine the APR you’ll receive based primarily on your credit score and overall creditworthiness. Those with excellent credit scores tend to get the lowest possible rates, while individuals with poor credit may get stuck with APRs of 25% or higher.
Is it better to get a credit card with a low APR or cash back/rewards?
It depends on how you plan to use the card. If you expect to carry balances, a low APR card is better to minimize interest charges. But if you pay in full each month, a rewards card with a higher APR can be more valuable for earning cash back, points, or miles on purchases.
How much can a high APR cost over time if I carry a balance?
Say you have a $5,000 balance on a credit card with a 25% APR. If youonly make $100 minimum payments, it will take over 7 years to pay it off, and you’ll pay around $3,600 in interest charges! High APRs can significantly increase the cost of debt repayment.
Does my interest rate affect my credit score?
No, the interest rate you pay on credit cards does not directly impact your credit scores. However, how you manage payments on accounts with high APRs can indirectly influence your scores over time if you miss payments or max out cards due to compounding interest charges.
