Credit cards provide convenience and flexibility – the opportunity to purchase a product or service today with someone else’s money that you can repay later. Problem is, that plastic perk can prove costly if you don’t pay down your debt on time due to a high rate of interest charged by the credit card company, which could exceed 20%.
Recently, the Trump Administration has called for a 10% cap on credit cards. Whether enough banks and credit card companies opt to do this voluntarily or an act of Congress will be required remains to be seen. Let’s take a closer look at how rates are set, what the President has proposed, and how a credit card rate cap would affect homeowners and homebuyers.
Understanding credit card interest rates
Curious how credit card companies set their interest rates? They begin with what’s called the Prime Rate (currently 6.75%). The Prime Rate is linked to the federal funds rate (currently about 3.75%), a rate set by the Federal Reserve that determines the cost for banks to lend to each other. The Prime Rate often averages 3 percentage points above the federal funds rate. The annual percentage rate (APR) you pay on your credit card is typically the Prime Rate plus a profit margin that usually spans between 12% and 13%. Today, the average credit card APR is 19.61%.
Credit card APRs are often much higher than for other types of loans, like mortgages, because credit cards are unsecured – meaning they don’t require collateral like your home. That increases risk for the credit card company in the event you don’t repay your debt; the company lowers its risk by marking up the rate.
Truth is, consumers with credit cards have enjoyed slightly lower rates over the past year. That’s in large part due to the Fed’s 2025 cooling cycle, during which several rate cuts helped lower the average APR down from a record 20.79% peak reached in August 2024. But some leaders in Washington, including President Trump, are pushing for more significant rate relief.
Understanding the credit card cap proposal
On January 9, 2026, President Trump announced a proposal to cap credit card interest rates at 10% for one year. He framed the move as a way to prevent Americans from being "ripped off" by rates that can sometimes reach 30% – charges he insists have spiraled out of control.
“The Trump Administration is pushing this because credit card interest rates have hit historic highs, and millions of families are drowning in debt. Americans owe about $1.2 trillion in credit card balances right now,” explains personal finance expert Andrew Lokenauth.
Independent researchers calculated that this cap could actually save consumers roughly $100 billion annually in interest payments.
Trump set a deadline of January 20, 11 days after proposing the rate cap, by which banks and card issuers need to comply with his demand. His proposal gained momentum in Washington in the days leading up to that deadline. Lawmakers from across the aisle, such as Democratic Senator Elizabeth Warren and Republican Senator Josh Hawley, indicated support for the respite this cap would provide, and a bipartisan bill is in the works.
But banking institutions opposed the proposal, cautioning that this would be a drastic move that would result in lenders limiting access to credit for millions of subprime and low-income borrowers due to the lending risks involved.
How and when the credit card cap could go into effect
The January 20 deadline passed, and no cap was initiated; most credit card issuers and banks have retained their current high rate levels. There has been no formal executive order or federal mandate, and, according to the Consumer Financial Protection Bureau, no nationwide law currently exists that restricts what card issuers can charge.
“If the goal is a legally binding national cap, Congress would need to pass a law and the president would need to sign it – because there is no general federal ceiling that automatically forces card issuers to charge less,” says Baruch Mann, CEO of BankingHub. “Even if the Administration pushes an executive action angle, banks and trade groups are already signaling heavy resistance, and the litigation risk would be immediate because pricing credit is central to bank safety and profitability. That’s why voluntary compliance is more realistic in the short term. But voluntary rate cuts usually come with tighter approvals, lower credit limits, or fewer rewards – which changes the deal for consumers.”
Banking industry lobbyists are fighting this initiative hard and warning about devastating consequences for consumers.
“Getting this through Congress won’t be easy, even with bipartisan support,” adds Lokenauth.
How would this rate cap impact homeowners?
In theory, many consumers would significantly benefit from a 10% rate cap on credit cards, especially those carrying high balances. That’s also true for homeowners.
“The upside is pretty straightforward. Lower interest on credit cards could ease your monthly cash flow, especially for people using credit cards for repairs, medical bills, or short-term expenses,” says Taylor Kovar, a Certified Financial Professional. “That can make it easier to stay current on a mortgage or rebuild savings.”
Lokenauth agrees.
“Imagine you are carrying $8,000 in credit card debt at 24% APR. That means you are paying about $160 per month just in interest. But if you drop that rate to 10%, you only pay around $67 per month – an extra $90 that could go toward lots of other expenses,” he continues.
But there are trade-offs involved.
“A blanket cap on credit card interest rates sounds consumer-friendly, but the real impact shows up downstream,” notes Julian Morris, a Certified Financial Planner. “Credit card pricing is how lenders manage risk. If the pricing is higher, they can manage more risk because they are being rewarded for higher interest rate payments based on that risk. But if rates are capped too low, lenders change the terms of who will get access to credit cards and tighten their restrictions.”
Put another way, a 10% cap could make it more challenging to get approved for other types of credit, including a home equity line of credit (HELOC) or a mortgage refinance, especially if you have any credit card debt. Remember that lenders review your total credit picture. If banks begin restricting credit card access to riskier homeowner borrowers, these borrowers could struggle to find emergency funds for things like an urgent roof repair or HVAC replacement.
How would this rate cap impact homebuyers?
If you are shopping for a home and need mortgage financing, lower credit card APRs could help you pay down your balances more quickly. That could raise your credit utilization and improve your debt-to-income ratio and overall mortgage profile, making you a more attractive borrower candidate to underwriters.
“On the flipside, if credit card issuers tighten approvals or reduce limits as a result of a rate cap, some homebuyers could see changes to their credit profile that don’t help during the mortgage process,” Kovar says.
Also, imagine a scenario where you have a credit score below 650; your credit card issuer could cancel your card entirely rather than lend to you at 10%. Having no available credit, your credit score would drop significantly, which means higher mortgage rates or outright home loan denial.
“In this instance, mortgage underwriters see you as high-risk because you have no credit cushion,” says Lokenauth. “Also, homebuyers often use credit cards for closing costs, moving expenses, or initial home repairs. Cut off that access, and you might not have the cash reserves to actually close on a home purchase.”
Another disadvantage for homebuyers and homeowners alike is that the President’s proposal only calls for a one-year cap, not a permanent fix. A temporary 10% ceiling would save significant dollars for consumers, but it could also lead to a higher demand for consumer spending, thereby increasing debt loads. Borrowers who carry high debt balances to capitalize on lower rates would have to face the financial music after the 12-month rate cap ends and lenders spike their rates back up.
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Will the credit card cap happen?
Ask the experts and they’ll agree that a 10% rate cap isn’t likely anytime soon.
“I don’t think it would pass as proposed. Banking lobbyists are too powerful, and the economic arguments against it are compelling,” predicts Lokenauth. “What might happen instead is a negotiated compromise, around a 15% to 18% rate cap, for consumers with good credit, with exemptions for subprime borrowers. The timing, if it passes, would probably be later this year or in 2027. Banks would need transition time to restructure their products.”
Kovar concurs that a flat 10% cap feels like a tough lift.
“It would take broad political agreement, and there would likely be pushback from lenders. If anything passes, it may look more limited or targeted rather than a hard cap across the board,” he forecasts.
Mann envisions a softer voluntary push as a more plausible path.
“If something happens, it’s more likely to be a narrow, temporary program or a headline agreement with big credit card issuers rather than a clean legal cap across every card,” he says.
Alternatives to a credit card cap
Morris believes a better solution for consumers would focus on competition, transparency, and targeted relief for persistently high balances rather than hard caps that reshape the entire credit ecosystem and unintentionally raise barriers to homeownership.
“A more effective strategy would focus on housing-specific affordability measures, such as expanding first-time buyer assistance, improving credit reporting rules around medical and short-term debt, and supporting housing supply to ease price pressure rather than reshaping consumer credit markets wholesale,” explains Mike Bennett, CEO of DealMate Real Estate.
Lokenauth suggest that several other measures would better help homebuyers, homeowners, and consumers overall, including:
Expanding access to 0% balance transfer cards for borrowers with decent credit. “This gives them 12 to 18 months to paydown balances interest-free and is a market-based solution that already exists,” he says.
Require clearer disclosures about minimum payment traps. “For example, most people don’t realize that paying just the minimum on $5,000 at 20% APR will take 23 years and cost $7,700 in interest. This should be made starkly visible on every statement.”
Tax incentives for debt paydown. Allow consumers to deduct credit card interest on their taxes, similar to student loan interest.
Strengthen financial literacy programs and offer credit counseling, particularly for homebuyers.
Cap fees instead of interest rates. “The average household pays $200 annually in credit card fees. Eliminate late fees, annual fees, and foreign transaction fees.”
FAQs
What is the average interest rate on credit cards currently?
At the time of this writing, the average credit card APR is 19.61%.
What is a 0% APR credit card?
A 0% APR credit card won’t charge you interest for a specified period, typically spanning 6 to 21 months. This flexible window enables you to pay off new purchases or consolidate debt without the additional cost of interest. You often need a credit score of 670 or higher to qualify, and it’s important to be aware of fine print limitations. For example, the credit card company could require a 3% to 5% upfront fee for balance transfers, and the card could be canceled if you miss a monthly payment. Smart borrowers pay off their balances in full before the 0% APR window expires.
How can my credit card spending and payment habits affect my credit score?
The way you use and pay off your credit cards affects your overall credit and financial reputation. Credit utilization (spending) and payment history comprise 65% of your FICO credit score. That’s why making payments consistently before the deadline is crucial – it demonstrates your reliability to lenders. And the amount of the available credit limit you actually use is a reflection of your spending habits. Keeping your credit balances low – preferably less than 30% of your total limit – demonstrates that you aren’t overextended. Your credit score can drop, even if you don’t miss a single payment, if you max out your borrowing limit or carry high debt-to-limit ratios. If you want to up your score, experts recommend paying off your credit card balance on time and in full and not maxing out your credit cards.
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