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In search of a Lower Credit Card Interest Rate? Good Luck.

Credit card debt is rising, and searching for a card with a lower rate of interest can aid you lower your expenses. But the challenge is finding one.

Smaller banks and credit unions typically charge significantly lower rates of interest on bank cards than the most important banks do — even amongst customers with top-notch credit, the Consumer Financial Protection Bureau reported last week.

But online card comparison tools are likely to emphasize cards from larger banks that pay fees to the sites when shoppers apply for cards, said Julie Margetta Morgan, the bureau’s associate director for research, monitoring and regulations. “It’s pretty hard to buy a superb deal on a bank card right away.”

For cardholders with “good” credit — a credit rating of 620 to 719 — the everyday rate of interest charged by big banks was about 28 percent, compared with about 18 percent at small banks, the report found.

For those with poor credit — reflected by a rating of 619 or lower — large banks charged a median rate of greater than 28 percent, compared with about 21 percent at small banks. (Basic credit scores range from 300 to 850.)

The variation within the rates charged by big banks and smaller ones can mean a difference, on average, of $400 to $500 a 12 months in interest for cardholders with a mean balance of $5,000, the bureau found.

“I used to be surprised by the gap” between the rates, said John Pelletier, director of the Center for Financial Literacy at Champlain College in Burlington, Vt.

The difference is greater than academic, since Americans owe greater than $1 trillion in bank card debt and delinquencies are rising.

The consumer bureau, in its report, said a “lack of competition likely contributes” to higher card rates of interest at the most important card firms. (The top 10 issuers represented 83 percent of bank card loans in 2022, although that was down from 87 percent in 2016, the bureau reported in October.) A deal to mix two big card issuers, Capital One and Discover, was announced this week and is more likely to draw regulator scrutiny due to concern that it might give larger financial institutions much more power to set higher rates.

In response to the bureau’s report, the Consumer Bankers Association, a trade group representing mostly large banks, defended the bank card market as “highly competitive” and criticized the bureau for making “troubling, unfounded” statements.

“A thriving marketplace means that customers can select products which will have different prices and offer features, perks or other value that’s specific to them,” the association said in an announcement.

The bureau based its report on 643 bank cards offered by 84 banks and 72 credit unions through the first half of 2023. Most cards were available nationally, while the remainder were offered regionally or in a single state. The report includes annual percentage rates, or A.P.R.s, on general purpose cards offered by the 25 largest card issuers (based on outstanding bank card assets), plus a sample from small and medium-size banks across the country.

The bureau collects data on bank cards in a survey twice a 12 months; last spring the survey began asking for more details, like how credit scores affect rates.

Federally chartered credit unions have a statutory cap of 18 percent on the rates of interest they will charge, the bureau noted. But smaller banks also had lower rates overall.

Fifteen card issuers, including nine of the most important, reported offering at the very least one card with a maximum rate above 30 percent. Those banks included familiar names like Ally, Capital One and Citibank. (Many such cards were “co-branded,” the bureau said, meaning additionally they bore the name of partners like stores or airlines.)

A card’s rate of interest is of less importance to individuals who pay their balance in full every month, since they’re not paying interest. Those consumers could also be more serious about using bank cards for “money back” rewards or for points that translate into savings on purchases like frequent flier miles or hotel stays.

But should you’re a “revolver” who recurrently carries a balance, a double-digit rate of interest will probably wipe out any profit from money back or points. “You shouldn’t be selecting a card based on points” should you typically carry a balance, said Adam Rust, director of economic services on the Consumer Federation of America.

Many people, though, undervalue the impact of rates of interest on their bank card debt. “The immediate gratification of buying, coupled with the deferred pain of payment, can overshadow the long-term financial costs represented by the A.P.R.,” Sachin Banker, an assistant professor of selling on the University of Utah’s business school, said in an email.

People might pay more attention to card rates in the event that they understood the compounding of interest over time, Mr. Pelletier said. He calculates that somebody with good credit who carried a card balance of $5,000 would save $42 a month by utilizing a card with the everyday small bank rate as a substitute of the large bank rate.

Even should you recurrently repay your card balance, it’s a superb idea to have a lower-rate card since an unexpected expense — a medical bill, say — may require you to hold a balance temporarily.

The consumer bureau has said it’s considering making a public search tool that may include quite a lot of cards from big banks and small. “We are actively taking a look at that right away,” Ms. Morgan said.

The bureau already makes available a web based spreadsheet showing the terms on cards included in its survey.

The Independent Community Bankers of America, a trade group, offers a search tool for local banks at www.banklocally.org. You can then check the web sites for card rates or call for information.

The National Credit Union Administration offers a search tool for credit unions. Many limit membership to certain groups, but some are more flexible.

Here are some questions and answers about bank cards:

Cards issued by large banks were thrice as more likely to charge an annual fee as those from smaller banks, the buyer bureau’s report found. Plus, the typical fee at big banks was larger — $157, compared with $94 at smaller ones.

Credit cards offer “unsecured” loans — meaning the debt isn’t secured by collateral, because it is with a mortgage or automotive loan. If you don’t pay your bill, the bank can’t seize property to cover its losses, so it charges higher rates to compensate for its risk. More recently, card rates generally rose because the Federal Reserve raised its benchmark rate to chill inflation.

But in a separate evaluation published on its website on Thursday, the buyer bureau said card issuers had raised rates of interest significantly above prime lending rates, costing consumers more interest.

An vital think about qualifying for a superb rate is your credit rating, which relies on information in your credit report. Before applying for a latest card, check your report for accuracy. (A recent evaluation from Consumer Reports found that complaints to the federal government about inaccurate credit reports had greater than doubled since 2021.) You can check your report on the three big credit bureaus as often as weekly at no charge, at www.annualcreditreport.com.

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