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Why credit card APRs are still high

While interest rates have been historically low that hasn’t been the case for credit cards. Since the first week of January, the annual percentage rate, or APR, for variable-rate credit cards has increased from 14.56% to 15.31%. Variable rates are common for credit cards.

Meanwhile, home equity lines of credit and new car loans saw record lows earlier this year. A 30-year fixed home mortgage rate, while above its record low of 3.5%, is now hovering around 4.6%, still low by historical standards.

Three are three main reasons for the high rates on credit cards and they involve the type of debt, government legislation and consumers.

1) Generally, credit card rates will always be higher than those of other loan types because credit card debt is unsecured. Mortgages are backed by houses, and auto loans are secured by cars. The risk for credit card issuers is higher.

2) Legislation has also been an issue, specifically the Credit Card Accountability, Responsibility and Disclosure Act of 2009. The CARD Act included: No interest rate increases in the first year, increased rates don’t apply to new charges, caps on penalty fees, elimination or limitation of other fees, and a restrictions on billing and payment practices. To recoup the lost income, companies started raising interest rates and annual fees.

3) Consumers are also to blame. Many credit cards come with a range of APRs. Which one a consumer gets depends largely on their credit score. Those with a great FICO credit score, generally above 720, get an interest rate between 10% and 15%. Those with credit scores between 680 and 720 will receive an APR between 15% and 20%. Credit scores between 620 and 680 will probably get an APR in the 20s.