Latest borrower squeeze: Credit card rates climb
It's not just the cost of borrowing to buy a home that's getting more expensive. Pricier credit card debt is also putting a squeeze on consumers who are relying more on plastic amid the worst inflation shock in decades.
Why it matters: For those carrying a balance, that debt is expected to get even costlier to pay off, as the Federal Reserve continues an aggressive interest rate hike campaign to tamp down red-hot price growth.
"The prime rate may end the year at 6%. Add in credit card companies' average margin and that could push the average credit card rate a little over 19% — the highest we have on record," says Ted Rossman, a senior industry analyst at Bankrate.
- Credit card rates — unlike mortgage rates — move with a lag in response to Fed policy.
By the numbers: Consumers have opened a record number of new credit card accounts so far this year — 11.5 million, according to Equifax.
- And in a sharp shift from a pandemic-era trend, credit card balances are growing again. Balances jumped consecutively in the final three quarters of 2021, before backing off slightly last quarter, according to the Fed's latest household debt and credit report.
- Balances are still about 10% below the pre-pandemic peak.
The bottom line: Amid the booming job market, delinquency rates remain at rock-bottom levels, though there's been a slight uptick in borrowers with lower credit scores starting to fall behind on payments.