Credit card companies are in the business of making money. A good portion of their earnings comes from the processing fees they charge vendors when a customer swipes a card. But they also charge interest — and how much interest you’ll pay is determined by two factors: the amount you borrow and the
annual percentage rate (APR) you agree to when signing up for the card.
An APR is pretty much exactly what it sounds like: the yearly (annual) percentage of your balance that the credit card issuer charges as interest if you don’t pay off the statement balance in full each month. Comparing APRs when choosing a credit card means you could find a lower rate, which might save you a lot of money over time.
So what’s a good APR for a credit card? We’ll break it down for you and show you how to land an interest rate that keeps your journey toward financial health on track.
How do APRs work?
On credit cards with variable APRs (which is most cards), the APR is tied to a benchmark
interest rate — usually the prime rate — which fluctuates based on Federal Reserve policies and economic conditions. When the prime rate changes, your variable APR will adjust accordingly.
For example, if the prime rate is 7% and your card has a margin of 12%, your variable APR will be 19%. While this allows your interest rate to drop if market rates decrease (a good thing!), it also means the rate can go up, making it more expensive to carry a balance.
Fixed APR cards aren’t as common. You’ll usually only see them offered by credit unions or for special programs. Fixed interest rates can still change, but the credit card issuer has to give you advance notice first.
What’s a low APR for a credit card, and what APRs are too high to consider?
The APR on credit cards is what determines how much interest you’ll pay. That means a high-APR credit card can quickly lead to financial trouble if you can’t pay the full statement balance. But what qualifies as a good credit card APR for you depends on the
strength of your credit score and the perks offered by the credit card issuer.
Borrowers with excellent credit (a FICO score of 740 or higher) should usually look for cards with an APR of 14% or below. With an average credit score (between 620 and 739), a credit card APR of around 16% is considered good. Rates above 25% are common for subprime credit cardholders (aka people with scores below 620) because lenders see them as a higher risk.
The type of credit card will also impact the APR. Reward credit cards or cards with perks like cashback and travel points often have slightly higher APRs, even for borrowers with strong credit. Credit card APR averages also fluctuate with market trends, so the prime rate we mentioned earlier will be part of what decides the rate you get.
How to assess credit card APRs
Before committing to a card, look closely at its full APR structure. Here’s what to evaluate:
The interest rate. Start by noting the advertised purchase APR. Many cards list a range (15–25%, for example). The prime rate and your creditworthiness determine where your APR falls within that range.
Introductory offers. Some credit cards offer a 0% APR for an introductory period, typically somewhere between six and 18 months. Make sure you can manage the regular APR that will kick in once the introductory period ends.
Penalty APRs. Missing a payment could trigger a penalty APR, which could be significantly higher than your standard rate — sometimes 29% or more.
Cash advance APRs. If you plan to use your card to get cash at ATMs, note that credit card cash advances often come with much higher APRs and no grace period.
What to expect from credit cards that offer a low APR
Low-APR credit cards are better for borrowers who tend to carry a statement balance from month to month. With lower interest rates, you’ll pay less in interest, which makes it easier to manage debt.
A credit card with a low APR can be an affordable way to finance larger purchases like home improvements or medical bills. Plus, more of your monthly payments go toward the principal balance (the amount actually borrowed) instead of interest, which can help pay off the debt faster.
A
low-interest credit card will usually come with fewer perks or rewards, but it’s a smart way to minimize borrowing costs. To get one of these attractive interest rates, though, you’ll likely need a credit score of at least 740.
What to expect from high-APR credit cards
Lenders have two types of borrowers in mind for high-APR credit cards: people with less-than-perfect credit and those looking for extra perks or features. Part of the reason card issuers assign higher rates is to offset the risk of lending to applicants with lower credit scores. But they also know that a low credit score means you’ll have fewer options with other lenders, so they charge you more money because they can.
Since APRs on these cards can reach 30% or more, carrying even a small balance can make your debt grow quickly. You’ll also find that cards with higher APRs often include annual fees, especially rewards credit cards. That’s just one more expense you’ll have to pay each year.
If you can use your credit card responsibly and pay off your full balance every month, a high-APR card might still be worth it. Opening a new card will lower your credit utilization ratio and help build your payment history, both of which could improve your credit score over time. Just make sure to keep a close eye on your balance so the debt doesn’t grow.
How to get a good APR
If you’re early in your credit-building journey or if you’ve had trouble with debt in the past, you’ll need to commit to some good financial habits to qualify for a low-APR credit card. Follow these steps to improve your chances.
1. Pay on time
Consistently paying debts on time is one of the biggest factors in maintaining a strong credit score. Making payments 30 days or more after the due date will damage your credit (and stick you with late fees), making low-APR credit hard to land until you get your payment history in check.
2. Lower your credit utilization ratio
Remember that credit utilization ratio we mentioned before? That’s the percentage of credit you have available to use. If you have a $1,000 credit limit, for example, but the balance on your credit report is $750, your credit utilization ratio is 75% — much higher than the 30% or below that low-interest credit card issuers want to see.
3. Consider a balance transfer
If you’re carrying high-interest debt, look for credit card offers that offer balance transfers to take advantage of a low or 0% APR. Balance transfers are a great way to save on interest and pay off your balance faster — just make sure you understand the transfer fees and duration of the promotional APR period.
4. Keep no-annual-fee cards open
A good credit card could be worth keeping open even if you don’t use it. That’s because it contributes to your available credit and credit history length — both factors that affect your score. Just be sure the unused credit cards you’re keeping open don’t charge an annual fee.
5. Limit your applications for new credit
Most
credit card applications trigger a hard inquiry, which can temporarily lower your credit score. Be strategic with applications to avoid unnecessary dips.
6. Become an authorized user
If a trusted family member or friend has a credit card in good standing, see if they’ll add you as an authorized user to help build your credit profile. You’ll get credit for their low utilization and on-time payments. And if you’re new to borrowing, becoming an authorized user on a card that’s been open for years will improve the length of your credit history almost immediately.
Just know that if they miss their payments or have too high a utilization ratio, your credit score could take a hit. Be careful about who you ask.
7. Practice healthy credit habits
Keep your balances low and make on-time payments to show lenders you’re reliable. Regularly check your credit score to see your progress, and if you spot inaccuracies, report them to the credit bureaus right away. As your score increases, you have the potential to negotiate a lower APR or apply for a better card.
With EarnIn’s
Credit Monitoring tool, you can keep a close eye on your credit score
for free — no inquiries required.
Power your finances with EarnIn
That last tip we gave you is a lot easier with EarnIn, the app that gives you on-demand access to the pay you’ve already earned. Our
Cash Out tool lets you access your pay as you work — up to $150 a day with a max of $750 between paydays
— so you can better pay bills on time, even when unexpected expenses pop up.
But same-day wage access isn’t the only thing EarnIn offers. With Credit Monitoring, you can watch your score so you always know if you’re on the right track.
Please note, the material collected in this post is for informational purposes only and is not intended to be relied upon as or construed as advice regarding any specific circumstances. Nor is it an endorsement of any organization or services.
Calculated on the VantageScore® 3.0 model. Your VantageScore 3.0 from Experian® indicates your credit risk level and is not used by all lenders, so don’t be surprised if your lender uses a score that’s different from your VantageScore 3.0.
Learn more.
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