Just a 1% APR Hike Slashes Credit Card Spending by 8.7% the Next Month

Raising interest rates on credit cards leads to a significant decline in spending in the following month. And it doesn’t have to be a big increase in credit card interest rates to trigger this decline in spending among cardholders, according to an analysis by the Federal Reserve Bank of Boston. 

Just a one percentage point increase in a credit card’s annual percentage rate causes consumer credit card spending to decline by 8.7% in the following month, according to the Fed’s analysis.  

Credit card accounts with revolving balances and those with low credit scores are driving these aggregate declines in spending. So this news is of particular interest to subprime lenders. 

In contrast, spending on credit card accounts that do not carry balances and spending on credit card accounts with high credit scores do not drop significantly when interest rates increase.

Credit card interest rates are affected each time the Federal Reserve raises or lowers interest rates. This is because most credit cards have variable interest rates, and these rates will rise and fall depending on whether the Fed increases or decreases interest rates.

Because even a one percentage point increase in a credit card’s annual interest rate could cut spending by 8.7% the following month, any Fed action to increase interest rates could lead to a decline in credit card spending. 

But there is a limit to how much the Fed can influence credit card rates. Most credit card accounts have a maximum APR they can charge, and this APR is typically 29.99%. When an APR reaches 29.99%, it cannot go any higher even if the Fed raises interest rates. 

That’s why subprime lenders already charging 29.99% on credit card accounts will not be influenced by an increase in credit card rates by the Fed.

Credit card customers who revolve balances take note of an interest rate increase and spend less on their credit cards.

How much do they cut back? For credit card accounts that carry balances from month to month, a one percentage point increase in the APR results in a slashing of spending by about 15% in the following month, according to the Fed’s analysis. 

This is another fact that subprime lenders and other credit card lenders need to be aware of when pricing credit card accounts. Raising interest rates on an account with a revolving balance may lead to lower spending.

Just how many people are carrying credit card balances? In the fourth quarter of 2025, credit card balances rose by $44 billion to $1.28 trillion, according to the Federal Reserve Bank of New York. 

Carrying a credit card balance is a fact of life for many consumers. Forty-seven percent of credit card customers carry a balance, according to Bankrate’s 2026 Credit Card Debt Survey.

For people with low credit card scores, spending drops by about 18% on average when the APR increases by one percentage point.

These consumers may have limited financial resources, less savings and may not have access to alternative forms of credit. The best way they can manage an interest rate increase is to cut back on their credit card spending.

For people with high credit scores, their outstanding credit card balances drop by 7% and their spending stays about the same. These consumers have savings and other access to credit. They can afford to continue spending as they take steps to pay down their debt when interest rates rise.

Increasing interest rates by one percentage point can lead to an 8.7% decline in credit card spending. This statistic is even higher for credit card accounts belonging to people with low credit scores. With these accounts, spending drops by about 18% on average when the APR increases by one percentage point. 

Forty-seven percent of credit card customers carry a balance, and increasing a credit card’s interest rate on an account with a balance leads to lower spending. For card accounts that carry balances, a one percentage point increase in the APR slashes spending by about 15% in the following month.