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Is the APR on this credit card good or outrageous?
By looking at the rate cards that rate card issuers are offering now, you can see if you are getting a good deal.
What is APR? The annual interest rate, or APR, is a financial term that indicates the cost of borrowing money over one year. Credit card companies determine your APR based on your credit score and the card-specific APR range.
The APR on your card may not matter much to you if you always pay your bill in full every month, have a large reserve fund, and know that you will never use the card to fund, say, a new refrigerator or sofa. But you should pay close attention to the APR if you ever carry balances on your cards.
What is a good APR for a credit card?
The average credit card interest rate is currently around 16%, so any lower rate would be considered good.
“A good APR credit card is one that the customer can afford in the long run and is within their payment options,” said Veneta Sotiropoulos, assistant professor at the New York Institute of Technology School of Management.
Is there a bad APR for a credit card?
Conversely, a bad APR credit card is one that exposes you to high interest rates and doesn’t let you control your balances. A bad APR also means that the accrued interest will void any rewards or cashback you have earned for your expenses.
You should always try to avoid having a balance on your credit card, no matter what your APR is. But this is especially important if you can’t fully repay your balance each month and your card’s annual interest rate is higher than the average rate of around 16%.
If you anticipate a high credit card balance, beware of any card where your APR is likely to be north of 20%. And be aware that there are several cards, including those offered by retailers, that advertise APRs of 29.99% or more.
How to estimate the APR of a credit card
The annual interest rate on a credit card may depend on the type of card you choose. For example, cash back cards, student credit cards, travel reward cards, and retail store cards tend to have higher interest rates.
But low-interest credit cards typically charge an APR more than three percentage points lower than the national average for all cards. With an excellent credit score, you can be even more successful.
“A good credit card interest rate will always be 0%; however, this is not always realistic,” said Michael Fogut, pension planner and founder of Foguth Financial Group in Brighton, Michigan. “Your goal is to keep single digits if you have to pay interest.”
Here are a few things to consider when buying a credit card:
- Credit card typeA: It’s generally a good idea to follow this simple rule: get a bonus card if you plan to pay your balance in full every month, but look for a zero interest credit card or a low interest credit card if you think you can have a balance of some moment. If you want the best of both worlds, consider getting a bonus card for regular spending and a low interest card to stash in your wallet for large purchases or emergency expenses that you may not be able to pay off right away.
- Your credit scoreA: Credit cards usually advertise an APR range, and you won’t know yours until you apply and get a card. While it’s impossible to know in advance what your APR will be, consumers with shaky credit history should expect the APR to be closer to the maximum if approved.
How to qualify for a good APR
Not everyone will be able to find or qualify for a credit card that charges less than 10% APR. If you need a card with an ultra-low interest rate, you may need to contact a credit union or a small bank. The largest issuers usually compete on services and are not as competitive on price.
If you can’t qualify for a low rate card or prefer to deal with a bank, you’re unlikely to find a card offering much less than 13% APR. But even this above-average figure can help you save money. If you reduce your APR by just three percentage points from the average, you’ll save yourself $150 a year in interest payments on a $5,000 balance.
What is a good credit score that will help you get a low APR? One in the mid-700s or higher is ideal, but you probably won’t know what you might qualify for until you apply, said Jerry Detweiler, former director of education for Nav, a company that helps entrepreneurs manage their business credit.
In fact, some consumers with higher credit scores were surprised after applying for a lower rate card when they received an annual interest rate in the higher range.
But there are some steps you can take to try and avoid unpleasant surprises when applying for a new credit card. Here’s how:
- Check your creditA: Get a free copy of your credit report at AnnualCreditReport.com. You are legally entitled to receive one free credit report from each of the three major credit bureaus – Equifax, Experian and TransUnion – each year. “If everything is in order, you are more likely to qualify for the lower levels,” said Eric Bal, senior director of direct marketing at PenFed Credit Union. “As a general rule, people who are aware of their creditworthiness are not caught off guard.”
- Improve your scoreA: If your account doesn’t qualify for the lowest interest rate, it’s time to start working on improving your credit score. Start by paying your bills on time every time. You may also need to lower your credit utilization ratio, which indicates how much of your available credit you are using.
If you’re looking for a lower interest rate but don’t want to open a new card, you can call your current issuer and ask for a lower interest rate, Detweiler said. The worst thing a card issuer can do is say no.
It’s also not the end of the world, because while credit card interest rates are high, they can still be a cheaper way to finance debt than other options.
“It’s still cheaper than a payday loan,” Detweiler said. “Still [inexpensive] relatively speaking, and if you use it for a very short period of time, you do not pay the full annual cost. It shouldn’t break the bank if you need it for the short term to get by.”
bottom line
It’s hard to know exactly what your credit card’s APR will be before you apply. But you can always schedule a monthly payment in full, which ensures that your expenses are never subject to an annual interest rate – good or bad.
Editorial disclaimer
The editorial content on this page is based solely on the objective judgment of our contributors and is not based on advertising. It was not provided or ordered by credit card issuers. However, we may receive compensation when you click on links to our partners’ products.