It is very hard to predict exactly where credit card rates will be in ten years. History has shown that the fluctuations in such rates are difficult to foresee. However, because the U.S. prime rate is as low as it can go and credit card rates do follow it, rates have nowhere to go but up.
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If you look at historic credit cards rates from 20 years ago, according to the U.S. Bureau of Labor Statistics, average rates were just above 18%. As of the end of 2011, the average was 12.36%. However, rates have been even lower than this. Since early 2003, rates have bounced up and down from an average low of 11.88 to a high of 14.26.
The U.S. Prime Rate Corresponds to Credit Card Rates
Many credit card issuers tie their APR or annual percentage rate to the U.S. prime rate. Essentially, this means when the prime rate drops, the credit card rates drop also. However, they do not drop in a corresponding amount. This is because credit card companies also have a rate floor in place that allows their rates to not drop below a certain level in order for them to continue making money.
While the U.S. prime rate is not expected to increase significantly this year, it will likely rise in the next 10 years. History has shown that a decade can make a huge difference in terms of this rate.
Several Factors You Can’t Control Impact Credit Card Rates
There are many things that you have no control over when it comes to credit card rates. Such rates are tied to the interest rate that the Federal Reserve charges. When the inflation rate is stable, this does not change much. However if the inflation rate increases, the Federal Reserve interest rate will also, and in turn credit card rates.
The outlook for the future according to the credit card issuer is one of the factors that impact credit card rates. If a company sees interest as raising in general, its credit card rates are likely to be higher. If the company foresees you having problems reimbursing the debts you accumulate on a credit card, the rate will likely be higher also.
Fees and interest rates are the ways in which credit card issuers earn their money. This fact affects credit card rates because rates have to remain at a certain level to ensure that credit card issuers are paid. In addition, when changes were made in recent years to limit the fees credit card issuers could charge, a small rise in average credit card rates was noted.
Several Factors You Can Control Impact Your Credit Card Rates
When it comes to the credit card rates that you are eligible to receive, much depends on your own creditworthiness. Essentially, if you are a good credit risk, issuers will be much more eager to offer you credit. However, if you are a bad risk, they will not want to offer credit or will only offer you high interest rate credit with many strings attached.
Therefore, you need to know what to do to increase your credit worthiness and have better options when it comes to credit card rates. Be sure to always pay your credit cards and other accounts on time. Late payments can trigger hefty penalty interest rates and will show up on your credit report. You should also not exceed the credit limit you have for the same reason.
Try to keep the amount of credit used below 30% of what is available on your credit cards. This credit card utilization ratio is an important number. Keeping it below 30% shows good credit management and is seen favorably on credit reports.
To get your credit report, request your free yearly report from one of the three major credit-reporting bureaus: Experian, Equifax, or TransUnion.
Avoid carrying too much available credit. Having too much credit, especially when compared to your income, can be a negative on your credit report. Another thing that can drag down your credit is closing your oldest credit card as credit history matters when it comes to your creditworthiness. To learn more about managing and understanding credit cards, visit MyMoney.gov.
While you do have some control over the credit card rates you are offered, you have no control over where credit card rates will be in the future. Ensure that you are eligible for the best rates possible at any given time by safeguarding your credit worthiness.
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