About 60% of the nation's cardholders have variable rate cards compared to 35% just three years ago. The aggressive card pricing war since the recession of 1990-91 has forced all the major issuers to switch from high, fixed rate cards (19.8% being the most common rate) to lower, variable rate cards (prime + 9%-11% being the more common formula). Nearly 80% of variable rate cards are based on the prime rate.
Some cardholders are already feeling the pinch as some issuers adjust rates monthly. The majority of the lower rate cards listed in this month's survey are adjusted monthly. However the full effect will be felt with the July and August credit card statements as quarterly rate adjustments kick-in.
Typical consumers with a $1,700 average daily balance will see annual interest cost increase about $23-$25. Some consumers may actually see their interest rate approach the 18% level. For example the popular GM MasterCard will hit 17.65% (prime +10.4%). Also the Discover card will hit 18.15% and the Mellon Cornerstone MasterCard will go to 19.15%.
Given the intensity of the current rate war it is expected a few issuers will waive the July 1st increase as a marketing ploy or for public relations value. The scuttlebutt is at least two top ten issuers will hold the line on rate increases either by postponing the adjustment or modifying the rate formula.
With literally thousands of issuers offering rates under 15% and the proliferation of long-term single digit promotional rates consumers will bolt from any card extracting an interest rate of 18% or more. The writing is on the wall but unfortunately not every credit card banker sees it.
For consumers the rules to locating the best credit card deal have not changed. Since 68% of cardholders revolve or carry balances the interest rate is bottom line cost. Now with rates heading north it is all important to shop spread. If you are paying more than five or six points over the prime rate (now 7.25%) you are paying too much. If you have taken advantage of a promotional rate make sure the rate does not increase beyond this level. The marketplace is loaded with rate gimmicks and rebate schemes. Do not be distracted !
