Working through a lesson on Friday with my students on how to choose a credit card…as we discussed the importance of interest rates for “revolvers” or consumers who don’t pay off their credit cards, it struck me: You actually cannot find out about your APR (or annual percentage rate) until AFTER you have applied for your card. You could cancel your card if you don’t like the rate but too many credit inquiries and your credit score gets dinged. This certainly seems like an inefficient practice for such a large industry.
These numbers will give you a sense of the magnitude of this issue.
- As of the end of 4Q 2013, credit card debt stands at $683 billion.
- Average interest rates on variable rate credit card debt: 15.14% as of Feb. 2014. I have to admit that this seems low to me as I have been a lifetime “deadbeat” (pay off my bill every month) with a decent credit score and never seen a rate below 20%.
- As for interest rates, credit card interest rates, creditcards.com notes that “median advertised interest rates for purchases on bank credit cards in 2011 were 12.99 to 20.99 percent depending on a consumer’s credit history.”
That is quite a range, considering that each 1% difference amounts to about $6.83 billion a year in annual interest charges. Interestingly consumers seem focused on interest rates when picking a credit card..”40 percent of credit card holders surveyed in December 2010 said that low APR/Interest rate was the most important credit card feature.” Yet, the standard information they receive prior to applying is this range of interest rates “12.99 to 20.99 percent.” So they apply, are accepted (or not), and then told what their interest rate is.
Why isn’t there a credit card equivalent of Lending Tree where you provide your personal information in a common application and have credit card companies compete for your business? Barring that, why can’t consumers say “no” to credit card companies without getting a ding on their credit history?