Credit card holders are feel the pressure of the Fed’s latest attempt to rein in inflation by increasing Federal funds rate. Earlier this month, the Federal Reserve announced the fourth consecutive increase of 75 basis points; it was also the sixth increase this year.
After this latest increase, Kroger, one of the largest grocery chains in the country, raised its store card APR (annual percentage rate). The supermarket chain’s rewards credit card, the Kroger Rewards World Elite Mastercard, issued by US Bank, now has an APR range of 17.74% to 30.74%, crossing the 30% threshold that most major card issuers have not exceeded.
“The credit card industry has long viewed 30% as an unofficial cap that issuers wouldn’t cross for fear of scaring off potential applicants. Some cards have exceeded that number, but not by much, and they tend to be aimed at people with bad or no credit and issued by smaller banks. The big megabanks that dominate the credit card industry just haven’t been there. This is slowly starting to change,” says Matt Schulz, chief credit analyst at Lending Tree.
With another rate hike possible before the end of 2022, consumers could see other major retailers follow suit. After Kroger’s rise, Bloomingdales, Macy’s and Shell also increased the APR of their cards above this 30% threshold.
APR of credit cards over time
According to CreditCards.com annual retail credit card survey, the average retail credit card APR hit a record 26.72% this year. Retail cards are leading the way in terms of increasing APRs, but they could soon reach a breaking point.
“We recently saw some retailers, including Kroger and Wayfair, break the 30% mark for the first time, and I expect more to follow soon,” Schulz says. “I don’t think we’ll see a flood of cards over 30% because the banks just aren’t sure the market will support it. What we might see instead is banks opting to keep APRs on new credit card offers at 29.99% or less and instead looking to find revenue elsewhere, including potentially incurring fees. increase.
Average credit card interest rates for all card types are also on the rise.
According to the most recent bankrate datathe average annual percentage rate of charge (APR) for credit cards has reached its highest level since 1991. APRs are now at an all-time high of 19.04%, beating the peak of 19% over 30 years ago, and further increases may still be ahead.
3 ways to avoid debt and protect your credit score
As rates continue to rise, there are several ways to navigate this changing landscape to protect your finances.
- Prioritize the repayment of your credit debt. Carrying a balance from month to month will cost you dearly, especially as rates continue to rise. If you tend to have a balance and only make the minimum payment on your credit card, now is the time to reconfigure your budget and look for ways to eliminate that debt as quickly as possible to avoid paying high interest charges and fees. Also, paying off the debt could increase your credit score, and a higher score could persuade your credit card company to work with you and potentially lower your APR (more on that below). Pro Tip: Consider a strategy like debt avalanche methodwhich helps you target your high-interest debt first.
- Shop around for the lowest APR. If you’re looking for a new credit card, don’t settle for the first pre-approval that comes your way. Compare cards to determine which one has the lowest APR as well as other attractive introductory benefits like an interest-free period or a lucrative rewards structure that could help you cut costs.
- Call your credit card company and ask them to lower your APR. When the economy isn’t doing so well, lenders can be more flexible and offer consumers temporarily reduced interest rates or even a higher credit limit. “Even if you’re not in a financial crisis, all you have to do is call and ask for a lower rate,” says Schulz. “There’s no guarantee you’ll make it, but the success rates are so high that it’s clear it’s not just people with 800 credit scores and decades-long track records who are being helped. It definitely worth asking.”
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