Good Credit Leads to Cheaper Credit Cards
A recent report underscores that good credit may save consumers significant money on their credit cards.
The average interest rate for people with good credit went down 1.69% from the fourth quarter 2012, but the rates for those with average or poor credit went up 3.0%.
What has led to this further discrepancy in interest rates? One theory is that there is not much competition for low-end credit cards, with many credit card providers removing their sub-prime options during the recession. With fewer companies competing for these customers, it is easy for these issuers to charge a higher interest rate. Consumers with poor credit have very few alternatives, so they are almost forced to take whatever cards they can get. In this case, that means paying higher interest rates.
Subprime credit cardholders are also being hit with higher balance transfer fees, up 23.03% from the previous quarter. Rewards programs, which are mostly available for people with good credit, have improved. The initial rewards bonuses have gone up an average of 10.74%, and rewards perks as a whole are 15.4% more valuable than they were last quarter. Looking at matters holistically, the rich are getting richer and the poor are getting poorer–at least in the credit world.
What can be done about this? For now, consumers are encouraged to take advantage of all rewards programs available to them. This can help offset some of the costs and allow for the development of better credit. If you cannot get a rewards credit card, simply keep up with your payments and improve your score as much as possible. In the long run, a better credit score will pay significant dividends.