When shopping for a new credit card, one of the most important numbers to look at is the annual percentage rate. A credit card’s annual percentage rate, or the APR, is the cost of borrowing over a year. It includes interest and standard fees.
The lower the APR on a credit card, the less interest you’ll be charged on your balance. Even if you plan to pay your credit card bill in full each month and avoid interest altogether, understanding what’s considered a good rate can be helpful.
As a rule, excellent-credit applicants have no trouble qualifying for the best rates. But what is a good APR for a credit card? This can be a tricky question because the definition of “good” depends on multiple factors. Nevertheless, we’ll do our best to provide an answer.
Before we introduce you to some of the ways to shop around for a credit card with a competitive rate, let’s take a closer look at what APR means in practical terms.
Annual percentage rates are dependent on the prime interest rate, a benchmark figure which represents the lending rates banks offer to consumers with the highest credit scores.
Almost all credit cards come with variable interest rates which means that they fluctuate according to changes in the prime rate. In other words, when the prime lending rate changes, credit card rates tend to do the same. Note that these APR shifts are usually so insignificant that you won’t be able to notice them unless you compare your monthly credit card statements.
If you’ve ever shopped for a credit card, you’re probably aware that some credit card companies offer APR ranges, for example, 14% to 22%. In that case, the exact credit card rates you’ll be able to qualify for will be determined by your specific creditworthiness.
If you are among those consumers that pay their balance in full each month and make a point of not missing a deadline, getting the best APR deal doesn’t need to be your primary concern. Instead, we suggest you evaluate card offers based on cashback rewards and other perks that match your lifestyle and spending habits.
However, if you can’t avoid carrying a balance or plan on financing a big purchase with your credit card, we recommend you look for low-APR solutions. That way, not only will you pay your credit card debt faster, but you’ll also potentially save a significant amount on interest.
A good annual percentage rate on a credit card should fall below the current average rate. According to the Federal Reserve’s report on Terms of Credit at Commercial Banks and Finance Companies, the average interest rate for purchases on US credit cards has fluctuated between 14% and 15% APR since 2018. In Q4 of 2020, the average APR was 14.65.
Still, remember that the average rate doesn’t necessarily reflect the APR you’ll be charged on a credit card that you get approved for. In fact, the Federal Reserve also found that the national average annual percentage rate on all credit card accounts that incurred interest was even higher, ranging between 15% and 17% throughout the last two years.
The average credit card interest rate may also depend on the credit card type you’d like to apply for. For example, unsecured credit cards usually charge lower rates, while secured credit cards come with higher APRs – the lower your credit score, the higher your APR. Credit cards designed for consumers who need to build or rebuild their credit profiles usually come with hefty rates.
Moreover, issuers of reward and store credit cards also tend to charge higher rates to cover the cost of offering certain perks and paying out bonuses. On the other hand, balance transfer cards may lack some of the bells and whistles you’d get with premium cards, but they typically offer significantly lower rates.
Note that there are several types of credit card APRs, as different interest rates are applied to different types of balances. Getting the whole picture of how credit cards work can help you choose the options that offer the most affordable APR package.
Finding the lowest rates available for your credit situation requires a diligent comparison of different credit card offers. Here are the terms you should look for:
These rates are listed on the credit card issuer’s website. If you’d like to review the APRs on your existing card, the quickest way to find this information is by logging into your account on the credit card issuer’s website or mobile app.
There are quite a few factors that contribute to the annual percentage rate you’ll receive when you open a new credit card account. While it’s impossible to control all aspects that determine your APR, there are a few things that you can do to ensure that you get the lowest possible rate.
Being proactive about improving your credit history or maintaining your creditworthiness is one of the best strategies to employ. Start by checking your credit profile. If it turns out that your score needs a boost, make sure to follow these steps in order to qualify for credit cards with low APR in the future:
Another way to get a better APR on your credit card is by getting in touch with your card issuer and asking for a lower interest rate. Credit card companies are willing to offer lower credit card APR rates to consumers who struggle with making on-time monthly payments. If you’re having trouble keeping up with your payments, contact your creditor to see if you can qualify for a hardship program.
A credit score of 700 falls into the “good” score range (690-719). If you have a 700 credit score, you’ll be able to qualify for a good credit card interest rate.
However, keep in mind that credit card issuers set interest ranges, and even the best rate on a certain credit card (or any other financial product) may still seem too high to you.
If you have a FICO score of 800 or anywhere between 720 and 850, your credit is excellent. With a score that high, you should be able to qualify for all types of credit cards, including premium and low-interest credit cards. According to some of the most recent research, only 21% of US consumers have excellent credit profiles.
There are at least three reasons why you’re still facing a high APR despite your good credit.
First, unlike mortgages and car loans, credit cards are typically unsecured (with the exception of secured credit cards), which means that there is no collateral that creditors can repossess and resell to get some of their money back.
The second factor that could explain a high annual percentage rate for a credit card is uncertainty. Credit card issuers aren’t in a position to ask their clients why they need the money and exactly how much they’ll borrow. You could use your plastic to cover the costs of a small home renovation project or to play blackjack at a casino. Moreover, you could max out your limit or borrow just a hundred dollars.
Finally, the third possible answer to the question “what is a good APR for a credit card?” is profit. As obvious as it may sound, every credit card company is in business to make money for its shareholders. Not only does credit card interest revenue help boost bottom lines, but it also compensates for 0% periods of balance transfer cards and pays for generous benefits of reward credit cards.