The recent record highs in credit card balances can be attributed to a variety of factors, but research has found one explanation that has not yet been extensively explored: ignorance.
Nearly a quarter of Americans surveyed by LendingClub admit to not knowing their total credit card debt, and nearly half are unaware of their cards’ current annual percentage rate.
Even among those who know their APR, a third are unaware that their interest rate is directly linked to the base rate. This leaves many people confused about how and why their interest rates change.
Nearly half of respondents were unaware that their credit card APR increased by more than 5 percentage points due to Fed rate hikes between March 2022 and July 2023. More than a third are unaware that their credit card APR can fluctuate over time regardless of payment history or credit status.
Read the Schumer Box
Credit card companies are not required to proactively inform consumers of interest rate changes other than providing this information in statements. As a result, over a quarter of Americans surveyed said they did not know where to find their interest rate and were unaware that their interest rates were increasing after a promotional period ended.
Card issuers, however, are obliged to disclose cardholders’ tariffs.
“Credit card issuers have a responsibility to ensure clarity in their disclosures,” said Brian Riley, director of credit at Javelin Strategy & Research. “The Schumer Box, named after the New York senator, makes it easy and clear to see both interest rates and fees for each card. It’s written at a fifth-grade reading level and hard to miss.”
“If nearly half of customers don’t know their rates, that indicates poor budgeting more than anything else,” he said. “Borrowers shouldn’t just say they couldn’t find them. Credit card statements show the rates and fully document the charges. Customer service call centers are ready to answer questions about the rates and are trained to explain them.”
