Why Your Credit Card APR Could Rise Despite Stable Interest Rates

Rising Credit-Card Interest Rates Signal Increased Risk Aversion by Banks

Credit-card debt is becoming more expensive for consumers, even as the Federal Reserve has maintained its benchmark interest rate unchanged for several months. This trend reflects a broader shift in how banks are managing risk, particularly in an uncertain economic climate.

The Federal Reserve’s short-term interest rate has remained stable since its last cut in December. While this rate serves as a guide for many banks when setting annual percentage rates (APRs) for credit cards, recent changes show that card issuers are adjusting their rates based on the creditworthiness of their customers.

Some credit cards are increasing APRs for customers with lower credit scores while lowering them for those with higher scores. This strategy indicates that banks are becoming more cautious and trying to mitigate potential losses. Experts suggest that this behavior is not limited to one type of card but is occurring across a range of credit products tailored for different consumer groups.

For example, Chase’s Sapphire Reserve Card, which comes with a high fee and offers luxury benefits, now has an APR ranging from 20.24% to 28.74%. This is slightly lower than the previous range of 21.49% to 28.49%, according to Matt Schulz, chief consumer-finance analyst at LendingTree. Meanwhile, the Fidelity Rewards Visa Signature card, known for its unlimited 2% cash back, transitioned from a single APR of 18.24% to a variable range of 17.24% to 27.24%.

These changes are not just about numbers—they reflect a strategic move by banks to protect themselves against risk. When cards switch from a fixed APR to a variable range, it often signals that they are being more selective about who they consider low-risk customers and who they view as high-risk. According to Schulz, this is a way for banks to hedge their bets and reduce exposure to potential defaults.

Other co-branded travel and shopper-rewards cards have also adjusted their rates, with slight increases at the top end and decreases at the bottom. These adjustments may seem small, but they signal a larger trend in the industry. “Banks hate risk and always try to avoid it,” Schulz said. “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 credit-card offers has increased for four consecutive months, rising from 24.20% in March to 24.35% in July. Fed data also shows that the average APR for credit cards with balances increased to 22.25% in May, up from 21.91% in the first quarter.

Despite these trends, the average credit score among Americans remains relatively strong. In June, the average score was 702, which is considered good. However, the share of borrowers with prime scores (661 to 780) has declined slightly over the past two years, with more people moving toward the higher and lower ends of the credit-score spectrum.

Experts like Katie Kelton, a credit-cards expert at Bankrate, note that banks are adapting to changing economic conditions, including uncertainty around tariffs, policies, and consumer sentiment. “Banks are used to responding to a changing economy,” Kelton said. “But the muddy waters around tariffs, economic policies and consumer sentiment may be leading to precautionary moves from banks.”

For cardholders, the rising APRs could mean more debt if balances are carried over from month to month. The average credit-card debt per person is over $6,300, and Americans collectively owe $1.21 trillion in credit-card balances. While delinquency rates have decreased, they remain elevated, hovering near levels seen in 2011.

Many cardholders are unaware of the exact APR they are paying. Surveys suggest that anywhere from one-quarter to one-half of users don’t know their card’s APR without checking their statement. However, HAWXTECH readers appear to be more informed, with roughly half knowing their APRs and 30% needing to check their statements for the exact number.

Looking ahead, some traders are predicting a potential rate cut by the Fed in September. However, any relief for cardholders may take time, as it can take one or two billing cycles for rate changes to be reflected in APRs. Additionally, card issuers add a profit margin to the reference rate, which has been growing steadily over the years.

Even if the Fed lowers its rate, the impact on APRs could be limited due to the margins that issuers maintain. As a result, consumers may continue to see higher costs for carrying credit-card debt, especially if they do not pay their balances in full each month.