Credit card APRs fell by just 0.13% after Fed rate cut, report finds

Collectively, Americans are having a harder time keeping up with their credit card bills. Part of the problem: Carrying a balance comes at a high cost. 

Credit card rates spiked along with the Federal Reserve’s string of 11 rate hikes starting in March 2022. The average annual percentage rate rose from 16.34% at that time to more than 20% today — near an all-time high.

Those APRs are edging lower — but not by much — now that the Fed dialed back interest rates by a half point on Sept. 18 and is expected to cut its benchmark rate again when it meets next week.

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Most credit cards have a variable rate with a direct connection to the Fed’s benchmark.

Yet, a recent CardRatings.com survey found that fewer than half — 37% — of the credit cards surveyed changed their rates in response to the Fed’s September cut as of the beginning of the fourth quarter.

Altogether, the average credit card interest rate fell by just 0.13% from the previous quarter, the report found.

“When the Fed makes a rate cut, credit card rates often don’t fall by as much,” Jennifer Doss, executive editor and credit card analyst at CardRatings, said in a statement.

“One reason is that credit card companies are being cautious. After all, the Fed tends to cut rates when the economy is slowing. When that happens, lending to consumers usually gets riskier.”

Even with more rate cuts expected to come, consumers carrying a balance on their credit cards are unlikely to feel much relief, experts say.

“Interest rates took the elevator going up, they are going to take the stairs going down,” said Greg McBride, chief financial analyst at Bankrate.com. 

Rather than wait for more small APR adjustments in the months ahead, there are other ways to tackle high-cost variable rate debt.

“It’s always a great time to prioritize paying down credit card debt, no matter what the Fed decides,” said Sara Rathner, credit cards expert at NerdWallet. “It’s not always possible to pay off a large balance quickly, but any extra money you can put toward your debt each month can make a difference over time.”

Regardless of the Fed’s next moves, “look at where you are,” said Rod Griffin, senior director of consumer education and advocacy for Experian.

Cardholders who pay their balances in full and on time every month and keep their utilization rate — or the ratio of debt to total credit — below 30% of their available credit, benefit from credit card rewards and a higher credit score. That paves the way to lower-cost loans and better terms.

Cardholders carrying debt from month to month put themselves at risk of getting trapped in an expensive debt cycle.

Renegotiating high-interest credit card debt is a good bet, Griffin said. “There are better rates available.”

“If you are not getting the rates you want, shop around,” he said. “Use your power as a consumer to move on to a different provider.”

Alternatively, borrowers can call their card issuer and ask for a lower interest rate on their current card. The average reduction is about 6 percentage points, a 2023 LendingTree survey found — and 76% of cardholders who asked for a lower APR got one.

For consumers, it’s important to speak up, according to Griffin, and say to their lender, “I can do better elsewhere, or you can do better for me.”

But ultimately, a key factor that determines the credit card interest rate that you pay is your credit score, CardRatings’ Doss said. “Credit card companies charge higher interest rates to make up for higher risk. So, customers with low credit scores tend to pay higher interest rates.”

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