Interest rates are now hovering near record highs, at an average rate of 14.72%. And if your credit is bad enough, you could even end up with a rate as high as 59.9% APR.
That’s because while the CARD Act helped crack down on certain fees and requires more disclosures, it didn’t cap every credit card holder’s worst enemy: interest rates.
No, that is not the reason rates are high. Rates are high precisely because politicians tampered with them in the CARD Act. Credit cards are a loan and the rate is the price you pay to borrow money on the card. Included in the rate is the risk that you will not pay back the loan; lower risk results in relatively lower rates. This is not the only factor that determines the rate but it is one factor.
“Rates are going up because card issuers know that once you get a card they can’t raise the rates, so they’re raising rates on the front end to ensure they get the revenue from that interest,” said Beverly Harzog, credit card expert at Credit.com.
That’s after the fact. The problem is that issuers cannot raise rates after they discover you are a credit risk. So they have to compensate by raising rates on the front end.