Got iffy credit? Get ready for your debt to cost more as banks steadily shift credit risk on to consumers — despite the Fed holding rates steady

And that's something consumers should be aware of.

Why credit cards are getting more expensive for some borrowers

The Fed is not in charge of setting interest rates for consumer products like credit cards, auto loans, and personal loans. But its benchmark interest rate does directly influence how much it costs consumers to borrow. When the Fed raises its benchmark interest rate, it becomes costlier for banks themselves to borrow money — so they tend to pass that cost on to consumers. And on the flipside, when it's cheaper for banks to borrow, they tend to charge consumers less to borrow. Banks or lenders also base this decision on other factors that include loan size and creditworthiness.

MarketWatch recently reported that a growing list of credit cards are seeing changes to their APRs. Your card's APR determines how much your credit card balance costs you in interest.

Bankrate credit-cards expert Katie Kelton told the news outlet she noticed a small increase in credit-card rates during recent months.

Matt Schulz, an analyst at LendingTree, noted in the report that Fidelity’s Rewards Visa Signature card went from a single 18.24% APR in May to a variable APR of 17.24% to 27.24%. Likewise, Chase’s Sapphire Reserve Card used to have an APR range of 21.49% to 28.49%. Now, the top end of that range is 28.74%, while the lower end actually fell to 20.24%.

The reason banks are widening the range of their credit card APRs boils down to risk. Borrowers with lower credit scores may be more likely to default on their debt (be unable to pay it back), so banks try to offset that risk by collecting more interest on unpaid balances. They also want to reward their more creditworthy customers.

Of course, this isn't exactly a new practice. When you apply for a loan, your lender will review your credit score and offer an interest rate based on how high or low that number is, among other factors. It's also not unusual for credit cards to jack up APRs for borrowers with poor credit. But the fact that banks are doing it at a time when Fed rate cuts are on the horizon is telling. Many believe that the Fed will make its first interest rate cut of the year at its upcoming September meeting.

The fact that banks are making changes to APRs ahead of that meeting shows that they're feeling the broader squeeze of economic uncertainty.

“Banks hate risk and always try to avoid it,” Schulz told MarketWatch. “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.”

“Banks are used to responding to a changing economy. But the muddy waters around tariffs, economic policies and consumer sentiment may be leading to precautionary moves from banks,” said Kelton.

When credit card APRs might come down for consumers

The Fed's next opportunity to make a change to its federal funds rate is mid-September. But even if the Fed lowers interest rates as expected, it doesn't mean consumers will get to enjoy relief overnight. It can take a few billing cycles for a Fed rate cut to trickle down to credit card APRs.

As of May, the average credit card APR was 21.16%, according to the Federal Reserve’s own data. But even if credit card APRs do come down fairly quickly, some consumers may not even realize it.

A recent LendingClub survey found that 47.1% of Americans do not know the APR they're paying on their credit cards. A further 49.5% were not aware that their credit card APRs rose by over five percentage points between March 2022 and July 2023, when the Fed raised interest rates aggressively to combat inflation.