Jul 31, 2019

Delinquencies spike with record-high credit card interest rates

Data: St. Louis Federal Reserve; Chart: Axios Visuals

Since 2014, credit card interest rates have risen 4.4 percentage points, representing a 35% increase in costs for consumers, data from NerdWallet shows, despite the fact that U.S. interest rates remain at historical lows.

Context: Though the rate remains historically low, delinquencies are up 22% since 2015.

Why it matters: That adds significantly to the interest costs for consumers who carry credit card debt from month to month, and the average household now pays more than $1,150 a year in credit card interest.

On the bright side: Consumers may get some respite from a Fed rate cut. Credit card rates are legally tied to the so-called prime rate that banks charge their best customers, which is based on the U.S. overnight interest rate set by the Fed.

But, but, but: The Fed funds rate has diverged a bit this year from the prime rate and the credit card rate since the Fed paused its hiking cycle.

  • While the Fed rate hasn't moved since December 2018, the prime rate rose 15 basis points in January to 5.5% and has remained there, and the commercial credit card interest rate has risen 28 basis points to an all-time high of 17.14%.

Between the lines: NerdWallet's data also finds almost half of Americans (47%) do not pay their credit card bill in full each month and 38% of U.S. credit card holders don't know the interest rate on their cards.

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