Understanding Credit Card Interest Rates in 2020

In September 2020, the median credit card interest rate across all credit cards in the Investopedia database was 19.49%. This figure is based on average advertised rates from hundreds of popular card offers in the market.

Why Investopedia’s Rates Differ

The Federal Reserve’s average credit card rate was reported at 14.52% for June 2020. However, Investopedia’s data stands out because it tracks the median midpoint value of advertised rate ranges, offering a more accurate reflection of rates for the average American with a FICO credit score of 703. This score may not qualify for the best rates, hence making the median rate a more relevant benchmark.

Factors Influencing Credit Card Rates

Credit card interest rates are primarily determined by the credit quality of applicants. Individuals with excellent credit scores receive the lowest rates, whereas those with poor or no credit history face higher rates. Other factors impacting rates include the type of credit card and the risk-based pricing policies of the issuer.

Predictions for 2020 and Beyond

Credit card rates are expected to remain stable in the near future due to most issuers linking their rates to the Federal Reserve’s Prime Rate. While recent rate cuts have kept the Prime Rate low, any ongoing economic impact from the pandemic could lead to further adjustments before year-end.

Understanding Credit Quality Levels

Credit quality is often categorized based on FICO credit score ranges, which help determine the interest rates individuals may receive:

Types of Credit Cards and Rates

• Rewards cards: Offer points, miles, or cash back
• Student cards: Tailored for college students with limited credit history
• Secured cards: Require a deposit and help build credit
• Business cards: Designed for small business owners

Factors Affecting Interest Rates by Issuer

Each credit card issuer has unique risk-based pricing policies that impact the range of interest rates they offer and ultimately assign to customers based on their credit scores.

Prime Rate and Trends

Credit card interest rates are closely tied to the Prime Rate, currently at 3.25%, influencing rates at the card and account levels. Recent adjustments have responded to economic stimulus actions by the Federal Reserve.

Delinquency and Debt Trends

Credit card delinquency rates have decreased due to lower spending during the pandemic, while total revolving credit card debt has fallen below $1 trillion for the first time since 2017.

Methodology Behind Rate Calculations

Investopedia tracks rates on over 300 cards from major banks, calculating averages based on the midpoints of advertised ranges. Rates vary by credit quality, card type, and issuer, helping consumers better understand their potential rates. For news tips, reach out to [email protected].