There is no doubt that America is a credit card friendly country. Almost everyone has a credit card and most stores across the U.S. use a credit card processor to accept payments.
What some do not know is that credit card interest rates are close to hitting record levels. This lack of general knowledge is, in part, due to credit card issuers.
Some have up to fifteen days to send out notices to customers of an increase.
But this is not the only reason for the “sudden” rise in rates, far from it.
The increase in credit card rates is due to a growing number of credit card delinquencies.
Companies like Mastercard and Visa need to make their money somehow. The primary source of revenue for card issuers comes from fees and interest charges.
On average, each active account makes $213 for credit card businesses per year.
But when card users fail to pay their monthly bills, banks do charge interest on the borrowed amount.
In April 2019, Americans’ revolving debt, the bulk of which is credit card balances, hit $1.0645 trillion. It surpassed $1 trillion for the first time since the Great Recession in September 2017.
The hike in rates continues to increase.
The average balance on credit cards at the end of 2018 went up 2.4 percent from that in 2017.
For only U.S. Households, the average debt balance is $5,700. Almost half, 40 percent of all U.S. homes carry credit card debt.
The average for balance-carrying households is $9,333.
Delinquency rates on most consumer loans tend to be highest among younger borrowers. Consumers under 30 usually earn less than older card users, that is, until you reach the age of 50.
Delinquent credit card balances have also been on the rise among consumers between the ages of 50 and 69.
From 2015 to 2019, borrowers between 50 and 70 climbed by 87 basis points year over year.
Other factors play a role in high-interest rates too. Bad credit, low credit, or no credit will affect rates. So will the individual’s financial habits.
Age, credit scores, payments, and usage all have an impact on the percentage of interest rates. Some will be lower, while others will be higher.
With it currently being on the higher end, there must be something more contributing to the rates.
There are many card users with unpaid credit cards, and they continue to spend. It increases card debt even further, pushing interest rates higher and higher.
Credit card spending is the highest it has ever been. Total credit card balances stood at $850 billion in the first quarter of 2019. That represents an increase of $33 billion, or 3.6%, from the same quarter last year.
Interest rates on credit cards are close to hitting record levels. Based on the data, we now have a better understanding of why.
If card users proceed to spend while making fewer credit card payments, we are in trouble.
Overdue payments and collective debt will continue the increase in interest rates. Until, eventually, they skyrocket out of our control.