Credit card interest rates for consumers with fair credit have soared to an average of 21 percent this year, as compared to the same quarter in 2013, a financial research firm said Tuesday, warning that more cash-strapped customers are falling for “teaser” introductory rates that quickly rise.
Interest rates hit 21.07 percent in the first quarter this year, up more than 2 percent compared to the first quarter of 2013, according to CardHub’s 2014 Credit Card Landscape Report. Those with fair credit typically have credit scores in the mid-600s, from a range of 300 to 850.
“Credit card interest rates were higher across the board during the first three months of 2014 relative to the same period last year – rising an average of 2.12 percent on a year-over-year basis,” CardHub said in the report.
More credit card issuers are using zero percent introductory interest rates to attract new customers, according to the annual study. But the firm warned that those lower rates don’t last long – the average length of zero percent annual percentage rate (APR) decreased as compared to last year.
Zero percent introductory rates for the first quarter of 2014 averaged 10.02 months, down 1.09 percent from the same period last year, according to the report.
"Unfortunately for consumers who aren't careful or don't have the means to be disciplined, it's an unpleasant surprise when the zero percent interest rates wear off and you get hit with over 20 percent interest rates," said Jelena Ewart, general manager of credit and banking for personal finance website NerdWallet.
Ewart said the low introductory rates are used by credit card companies to increase profits. "If you get a zero percent introductory rate, you're going to be hit with a higher interest rate once that ends – something has to give," she told Al Jazeera.
The average U.S. household credit card debt is just over $15,000, according to NerdWallet. On average, student loan and mortgage debt per household is higher, at $33,607 and $154,365 respectively. Debt from credit cards is holding steady at around $854.2 billion nationwide, NerdWallet said.
Initial rewards bonuses – both cash- and miles-based – attracted more customers in 2014, with points and miles displaying 10 percent growth over last year, CardHub said.
But cash advance fees also went up this year, rising more than 10 percent in the first quarter of 2014 to $12.31.
"I don't think the situation is quite as alarming as it seems from this report," Ewart said. "But it is important to warn consumers about certain practices that could be characterized as unsavory."
Credit cards offer a convenient method of payment, Ewart said, adding that if consumers cannot reach the rewards responsibly, they might not be able to benefit from the promise they hold. Zero percent introductory rates will benefit consumers who are able to spend responsible and can pay off their card before the higher interest rates hit, she added.
"You have to watch out for yourself," Ewart said.