MW Why your credit-card company might jack up your card's APR even when the Fed holds rates steady

Andrew Keshner

The average annual percentage rate on new credit-card offers has increased for four consecutive months, one expert noted

It's getting more expensive to hold credit-card debt, even though the benchmark U.S. interest rate hasn't budged in months.

The Federal Reserve last week kept its short-term interest rate in the same place it's been since the central bank's last rate cut in December. The Fed's rate plays into the rate that many banks use as a guidepost to set annual percentage rates for the credit cards they issue.

But looking across the stack of credit cards that Americans use, a growing list of cards are slightly raising the interest rates they charge to riskier-looking customers. At the same time, they are lowering the APRs for their most creditworthy users.

That's a signal that banks are getting more cautious in an uncertain time, card-industry experts say. And it's happening with a range of cards geared toward different consumers.

Take Chase's $(JPM)$ Sapphire Reserve Card. The high-fee luxury card's APR currently ranges from 20.24% to 28.74%. It's been that way since May, when it changed from a range of 21.49% to 28.49%, according to Matt Schulz, chief consumer-finance analyst at LendingTree (TREE).

Elsewhere, the Fidelity Rewards Visa Signature card with unlimited 2% cash back moved from a single 18.24% APR in May to a variable range of 17.24% to 27.24%, Schulz noted.

When cards switch from a single APR to a variable range, it indicates they're hedging their bets to be more cautious toward riskier borrowers with lower credit scores, and more generous with more creditworthy ones, Schulz said.

A Fidelity spokesperson confirmed the card's rate change and noted the card's value for users.

Several other co-branded travel cards and shopper-rewards cards have adjusted their rates to go slightly higher at the top range while decreasing their lowest APRs, Schulz added.

These moves are small, but they speak volumes, he said. "Banks hate risk and always try to avoid it," Schulz told MarketWatch. "In an uncertain economy, there are a lot of risks out there, and part of what banks are doing to protect themselves is slowly raising interest rates, especially on folks at the lower end of the credit spectrum."

The average APR on new card offers has increased for four consecutive months, according to Schulz. The average offer was 24.35% in July, up from 24.20% in March.

Fed data shows the upward drift. For credit cards with a balance, the average APR increased to 22.25% in May. That's up from 21.91% in the first quarter.

Americans' average credit score was 702 in June, which is considered good, according to VantageScore, a credit-score company. (Scores range from 300 to 850.) The average score has held steady over the past year, but the share of borrowers with "prime" scores (from 661 to 780) has shrunk slightly in two years as more people have drifted toward the higher and lower ranges of the credit-score spectrum, VantageScore researchers said.

"Banks are used to responding to a changing economy. But the muddy waters around tariffs, economic policies and consumer sentiment may be leading to precautionary moves from banks," said Bankrate credit-cards expert Katie Kelton, who has noticed a small increase in credit-card rates during recent months.

A tough time for an upward drift on credit-card APRs

"Cardholders who don't carry a balance don't need to be terribly concerned about APR changes," Kelton said. "But if you do carry a balance, a higher APR could increase your debt even more quickly than before."

The problem is that many people are carrying sizable balances. Americans had a collective $1.21 trillion credit-card balance in the second quarter, according to Federal Reserve Bank of New York data on Tuesday.

Card delinquency rates continued tapering off in the second quarter, which was good news, New York Fed researchers said. But rates are still elevated, hovering near levels last seen in 2011, the New York Fed's numbers show.

There were 172 million consumers carrying a balance on their card with an average debt over $6,300 in the first quarter, according to credit-reporting company TransUnion $(TRU.UK)$.

Rising APRs at a time when the Fed has been holding rates steady may surprise some cardholders. But many might not know the rates they are paying on their balances: Anywhere from roughly one-quarter to one-half of card users don't know their card's APR, according to surveys.

MarketWatch readers appeared to show more awareness of the cost of their credit-card debt. Roughly half of people responding to MarketWatch polls on Instagram and X last week said they knew their credit-card APRs. Around 30% in both polls said they couldn't say their APR without checking their statement first.

Delayed relief - even if there's a Fed cut coming

A disappointing July jobs report and significant downward revisions to the jobs added in June and May could add to the U.S. economy's cloudy picture ahead. In the wake of the weaker-than-expected jobs numbers, traders are increasingly predicting a quarter-percentage-point cut when the Fed makes another rate decision in September.

But it could be a while before cardholders feel any sort of debt relief. It can take one or two billing cycles for a rate cut to filter through to APRs, Schulz said.

And card issuers add a margin to the reference rate, which is the prime rate.

"Credit-card rates are calculated by adding the prime rate - which is the Fed's rate plus 3 percent - plus a profit margin," said Kelton. "And since the Fed has held steady on rates this year, including during this week's meeting, we're really looking at issuers' profit margins for answers to APR increases or decreases."

The extra margins that card issuers tack on to the underlying rates have been growing for years, according to Federal Reserve Bank of Philadelphia researchers. The average margin reached an all-time high of more than 17% in the first quarter of this year.

Even when accounting for a slightly lower reference rate, Philadelphia Fed researchers said the costs of a person not fully paying their credit-card balance "is considerably higher in the current environment compared with just one year ago."

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-Andrew Keshner

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August 05, 2025 13:14 ET (17:14 GMT)

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