In many ways it's like “Goldilocks” What was the year of the credit card issuer. Not too hot, not too cold. According to the New York Fed, credit card balances grew 13% year-over-year in the second quarter and another 15% in the third quarter. -The pandemic reached its highest level in the fourth quarter of 2019, with infection rates reaching record highs. Still, delinquencies and defaults were well below normal levels, and card companies didn't have to overextend their marketing budgets to win new customers. In other words, the card company also ate cake this year.

Continue interest rate hike

The biggest theme in the credit card industry this year was a significant rise in interest rates. Bankrate has been tracking credit card rates since 1985, and the current average of 19.42% is an all-time high. In fact, 2022 saw the steepest single-year increase on record. Average credit card rates have increased 312 basis points (3.12 percentage points) since January 1st.

The previous all-time record was a 262 basis point jump in 2010. The explanation at the time was different. The CARD Act came into force in February 2010, dramatically changing the way credit card rates are calculated. Previously, issuers had much more freedom to adjust interest rates. The CARD Act restricted an issuer's ability to change a customer's interest rate. The simplest approach was to tie the rate to the underlying index, typically the prime rate, which is 3% higher than the Federal Funds rate set by the Federal Reserve. The issuer adds a profit margin on top of that.

Way back in 2010, an unintended consequence of the CARD Act was a much higher floor on credit card fees. Issuers closed their margins when they enacted a “prime plus margin” floating rate structure. When President Obama signed his CARD Act into law in May 2009, he averaged 10.79% on his credit cards, and when it went into effect in February 2010, he averaged 13.63%.

This year's rate hikes are all about the Federal Reserve and a series of rate hikes to combat high inflation. Reading in 40 years. The Fed has increased the Federal Funds Rate (the rate banks charge each other for overnight loans) by 425 basis points in 2022.

The average credit card rate hasn't changed much for several reasons. First, offers flow in and out of the market. Additionally, our sample includes many credit unions that by law cannot charge more than 18%. And finally, the Fed's latest rate hike (50 basis points) did not have time to pass the market yet. Most importantly, personal credit card rates are likely to be 425 basis points higher than they were at the beginning of the year.

Impact of Rate Increases

If you have $5,000 in credit card debt and are making minimal payments, it will range from 16.30% (national average at the beginning of the year) to 19.42% (current national average). Jumping to will add 7 months to the repayment cycle and cost. $1,173 in interest is added. At a rate of 20.55% (16.30% initially plus his 4.25% for the Fed's rate hike), the minimum payment would take nine more months, or $1,579 more, compared to the beginning of the year. there is.

Obviously these higher rate scenarios are getting worse and worse, but let's be honest, none of them are pretty: 16.30% his minimum payout towards $5,000 is certainly It wasn't a picnic. If you hold on to the debt for 185 months (over 15 years), you will accrue a total of $5,517 in interest.

In short, according to the American Bankers Association, the most active credit card accounts (53%) are in debt every month. His 60% of people with credit card debt have been in the position for at least his year, up from 50% last year, according to sister site CreditCards.com.

If you have debt and want to understand the impact of rising interest rates, enter your numbers into Bankrate's credit card payoff calculator.

How to pay off credit card debt

If you have credit card debt, my number one tip is to sign up for a 0% balance transfer card . This allows you to suspend the interest clock for up to 21 months. The best way to use either of these is to divide the amount you owe by the number of months in the promotional period so that you keep your payment plan at that level. Even do not add purchases.

The direct debit market is surprisingly stable despite rising interest rates. I would have expected the issuer to reduce the number of interest-free months or raise the transfer fees. Neither has happened, at least among the most attractive balance transfer cards.If anything, Bank of America recently joined Citi and Wells Fargo, and on certain cards he offers a 21-month interest-free period. As a result, competition is intensifying.

Rewards are It wasn't particularly exciting

The card issuer didn't make many waves in 2022 with interesting new reward credit cards. The sign-up bonuses were generally good, but not huge (aside from a few short-lived offers like Chase Sapphire Reserve®, the best referral bonuses were around 6 years). This was in contrast to his 2021, when the world began to emerge from the COVID-19 pandemic, which was a very busy year with card launches and updates.

There was no need for card issuers to be overly aggressive in 2022. According to Equifax's latest data, which covers the first eight months of the year, the bank had made his record 54 million credit cards by August 31st. This is a 16.4% increase over the first eight months of 2021 and represents an all-time high. .

Credit is widespread Remains Available

Despite concerns over high inflation and a possible recession, credit is still flowing freely. As of October, only 18% of credit card applicants were denied, according to the Federal Reserve. This is consistent with most of the last decade and has declined from a February 2021 peak of 26.3%. Third quarter. That's up from just 2.2% in Q2, but still clearly in the minority.

Similarly, credit card delinquency rates have started to rise slightly from very low levels, but are still well below historical standards.

TransUnion forecasts that the serious credit card delinquency rate will rise slightly to 2.6% by the end of 2023 from 2.1% at the end of this year. Credit bureaus also believe credit originations will decline slightly from this year's record levels, but remain category=”checking” aria-hidden=”true”>

Regulatory checks

After facing a very light touch from regulators during the Trump administration, the financial industry is now under more thorough scrutiny from the Consumer Financial Protection Bureau and Congress. Fighting “junk fees” has been the focus of his tenure. Also, late charges on his credit card are one of the issues he has set his agency's sights on (along with overdraft fees and the buy now, pay later industry).

Meanwhile, a bipartisan law known as the Credit Card Competition Act has been introduced in the Senate and House of Representatives. Backed by Senator Dick Durbin, a longtime critic of credit and debit card exchange fees, the bill would give merchants more choice in how they process credit card transactions. At first glance, it seems familiar, but upon closer inspection, I think it's quite the opposite.

As I have written before, I believe that credit card competition laws will severely limit credit card rewards programs and end up filling the pockets of large retailers at consumer expense. We believe that access to credit may be restricted and data security may be compromised.

The bill remains unresolved. Durbin and his co-sponsor, Senator Roger Marshall, have so far been unsuccessful in their attempts to tie it to the Defense Authorization Act. This is a common move. Attach smaller bills to higher priority mandatory bills. Alone, the credit card competition law is unlikely to be voted on anytime soon. I believe this bill will be devastating for everyday Americans, so I hope it continues. While we're starting to see some early signs of potential problems, credit card executives are skeptical of a return to “normal,” like delinquency levels in 2019, in contrast to any kind of credit crisis. Mostly speaking… A strong job market, which currently boasts an unemployment rate of just 3.7% (one of the lowest in 50 years), is a major factor.

Of course, many of these data points could be lagging indicators. It's the opposite of what's ahead and no one really knows what's ahead. But in general, the likelihood of a recession in 2023 seems likely to be mild. The credit card industry appears poised for further growth and should continue to benefit from long-term trends such as the continued rise in digital transactions.

Have a question about your credit card? Email us at [email protected] We are happy to help.