what is a good apr for a credit card

What is a good APR for a credit card?

Depending on your creditworthiness, a good APR for a credit card can vary based on your personal credit history and the type of credit card you have.

Good credit = good APR

If your credit score is high, getting the lowest APR possible is earlier to come by. However, what definitively qualifies as a “good”APR rate may vary. 

To further understand what APR is, a good way to think of it is to consider it a fee that credit cards use as a cost to borrowing money. However, with a good credit card and repaying the balance off in full each month, your APR does not really matter.

The current prime rate is an important factor used to determine your APR. The prime rate is a benchmark number that banks use when lending money to their customers with the highest credit. As the prime rate increases, card offer APRs will fluctuate accordingly. In addition, different types of credit cards, such as a rewards credit card, may have different annual percentage rates. 

However, your credit card’s APR will not matter if you pay off your credit card balance in full each month. When you are not carrying a balance from month to month, your credit card will not accumulate any interest. 

what is a good apr for a credit card

Comparing APRs

Based on data collected from the Federal Reserve, as of the first quarter of 2021, the national average credit card interest rate was 15.91%. However, it is not unusual to see APR rates above 20%, dependent on your creditworthiness as defined by a credit card issuer. 

It is important to remember that not all credit cards are the same, especially when it comes to credit card offers and APR rates – meaning that some cards will be more detrimental to your wallet if a balance sits from month to month. For example, a reward credit card that offers cash back offers and other premium features may have a higher APR than a typical balance transfer card. 

In addition, check your credit card’s terms and conditions to see if your card has a penalty APR from late payments or from other repayment behaviors. 

How is APR calculated?

Annual percentage rates are calculated based on a certain number of current criteria based on you and the state of the US prime rate. The prime rate is used by lenders as a starting point, they then will add additional margins to lessen their risk and maximize their profits on unpaid balances.

Your own personal creditworthiness is also used to determine your APR. Lenders will examine your finances, taking the following into consideration: payment history, credit report, credit utilization and debt-to-income ratio.

However, if you consistently pay off your credit card in full each month, your APR is an arbitrary number – as it only impacts balances carried over from one month to the next. 

Low APR expectations

The best way to qualify for a low APR credit card is to check out options from your local credit union, as they often have lower rates than major banks. In addition, if you have bad credit, qualifying for one of these cards may not be possible – they typically require a credit score of about 700 just to qualify. 

Credit cards with a low APR are usually bare bones credit cards, without any rewards or cash back offers. But, they can save you a lot of money if you know you will be carrying a balance from month to month. 

Many credit cards will ideally have a 0% APR introductory rate for at least the first 12 months of your account being opened. However, if you are looking to have a low APR for the duration of your account, credit unions are still your best bet for a low APR credit card.

What does a high APR mean for me?

Credit cards with additional perks, such as cash back, travel points or discounts, will often have a higher APR than their simpler counterparts. However, the interest they can build up can overshadow the benefits of these cards.

Watch out for store credit cards, as they often have APRs above 25%, which is even higher than the APR on a general rewards credit card. 

Improving your credit for a better rate

There are a few ways that you help to minimize the interest rate on your credit card, especially when actions are taken to improve your credit score. By polishing your credit reports, you may be able to increase your creditworthiness and qualify for better credit card terms.

The following can help you improve your credit score and help you qualify for a lower annual percentage rate:

  1. Track your credit score
  2. Build a strong on-time repayment history
  3. Be aware of your credit utilization – for reference keep it below 30%!
  4. Only apply for one credit card at a time
  5. Keep older, no-annual fee credit card open and active – even if this means only using them for small buys
  6. Request a free credit report from the three major credit bureaus – this can be done once a year

A few things to keep in mind

While putting a true estimate on what a “good” APR on a credit card really is, there are a few important things to keep in mind when comparing rates. The most important thing to remember is that the interest rate will only affect you if you are carrying an unpaid balance from month to month. Paying off your balance in full each month will save you a lot of money and you will never owe more than you spend. 

In addition, checking for promotional or introductory APR rates can be a great way to pay down other debts or finance a huge purchase. But, again, once this period expires, the APR will increase back to the regular rate.

By improving your credit score, you may be able to qualify for a lower APR in the future. You can also directly negotiate a lower APR with a bank if you would choose to do so. This is especially effective if you have shown a strong repayment history and have increased your credit score. By asking, your bank may lower your credit card’s APR. 

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