A good credit card APR might not matter much to you if you always pay your bill in full every month, have a big emergency fund and know you’ll never use the card to finance a large purchase. But you should pay close attention to the APR if you ever carry a balance.
Looking at the rates card issuers are offering now can help you figure out if you’re getting a good deal.
What is an APR, exactly? An annual percentage rate, or APR, is a financial term that shows the cost to borrow money over one year. Credit card companies determine your APR based on your credit score and the APR range for the particular card.
The APR on your card might not matter much to you if you always pay your bill in full every month, have a big emergency fund and know you’ll never use the card to finance, say, a new fridge or sofa. But you should pay close attention to the APR if you ever carry a balance.
Types of credit card APRs
Each credit card has an advertised APR for purchases, but there are also other types of APRs. You’ll need to check the fine print on the card terms and conditions to find APR details. Types of APRs include:
- Promotional APR: A promotional APR, also known as an introductory APR, applies for only a period of time after you open the account. These special APRs, often 0% APRs, typically last anywhere from six to 18 months and may apply to balance transfers or purchases.
- Purchase APR: A purchase APR is the interest rate that applies to the regular purchases you make with your card. This is the number that’s typically referenced when talking about the APR for the card. The purchase APR applies only if you carry a balance on the card.
- Cash advance APR: A cash advance APR is a higher APR that kicks in if you use your credit card at a bank or ATM, or use a “convenience check” sent by your card issuer, to get your hands on cash in a pinch. Not only do you pay a fee, but you also get charged a much higher interest rate that typically kicks in immediately.
- Penalty APR: A penalty APR is a much higher interest rate than the card issuer charges when you become delinquent on your account. Penalty APRs often reach 30% or higher. Try to make at least your minimum payment to avoid getting hit with a penalty APR at all costs.
Knowing the difference between the various types of APRs and reading the fine print on your card will help you avoid getting surprised by higher-than-expected interest.
How to evaluate credit card APRs
The APR on a credit card can come down to the type of card you choose. For example, cash back cards, student credit cards, travel rewards cards and retail store cards tend to carry higher interest rates.
But low-rate credit cards typically charge an APR more than three percentage points lower than the national average for all cards. According to CreditCards.com’s weekly rate report, the national average rate for low-interest cards is below 13% as of September 2021. With an excellent credit score, you may be able to do even better.
“A good credit card APR rate is always going to be 0%; however, that isn’t always realistic,” says Michael Foguth, a retirement planner and founder of the Foguth Financial Group in Brighton, Michigan. “Your goal is to keep it in the single digits if you do have to pay interest.”
Here are a few things to consider when shopping for a credit card:
- The type of credit card: It’s generally a good idea to follow this simple rule: get a rewards 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 may carry a balance at some point. If you want the best of both worlds, consider getting a rewards card for regular spending and a low-interest card to stash in your wallet for big purchases or emergency expenses you may not be able to pay off immediately.
- Your credit score: Credit cards typically advertise an APR range and you won’t know your exact APR until after you apply for and receive the card. While it’s impossible to know what your APR will be ahead of time, consumers with shaky credit should expect to get an APR closer to the maximum if approved.
What is a good APR for a credit card?
The average credit card interest rate on new credit card offers is just over 16%, according to the CreditCards.com Weekly Credit Card Rate Report. So anything lower would be considered a good APR for a credit card.
“A good credit card APR is one that a customer can afford in the long term and that is within the limits of their paying capabilities,” said Veneta Sotiropoulos, a professor at New York Institute of Technology School of Management.
Is there a bad APR for a credit card?
Conversely, a bad credit card APR is one that subjects you to high interest charges and prevents you from keeping your balances under control. A bad APR is also one in which the interest charges cancel out any rewards or cash back you’ve earned on your spending.
You should strive to avoid carrying a balance on your credit card, no matter what your APR is. But it’s especially important if you can’t pay your balance off in full each month and your card’s APR is above the average rate of about 16%. If you foresee carrying a high credit card balance, beware of any card in which your APR is likely to be north of 20%. And be advised that there are a handful of cards – including some offered by retailers – that advertise APRs of 29.99% or more.
How to qualify for a good APR
Not everyone is going to be able to find, or qualify for, a credit card that charges less than 10% APR. If you want a super-low interest rate card, you may have to turn to a credit union or smaller bank. The biggest issuers generally compete on services and aren’t as competitive on price.
If you can’t qualify for a low-rate card or prefer dealing with a bank, you’re not likely to find a card offering much lower than 13% APR. But even this better-than-average rate can help you save money. If you reduce your APR by just three percentage points off the average, you’ll save yourself $150 in interest charges per year on a $5,000 balance.
What is a good credit score that will help you get a low APR? A score in the mid-700s or higher is ideal, but you probably won’t know what you can qualify for until you apply, says Gerri Detweiler, education director for Nav, a company that helps entrepreneurs manage their business credit.
In fact, some consumers with great credit scores have been unpleasantly surprised after applying for a lower rate card when they end up with an APR in the higher range.
But you can take some steps to try to avoid nasty surprises when you apply for a new credit card. Here’s what to do:
- Check your credit. Get a free copy of your credit report at AnnualCreditReport.com. You are entitled by law to one free credit report from each of the three major credit bureaus – Equifax, Experian and TransUnion – each year. And the credit bureaus are offering free credit reports every week through April 2022 due to the pandemic. “If everything is shipshape, you’re more likely to qualify for the lower tiers,” says Eric Bahl, director of card product and channel development for PenFed Credit Union. “Generally, people who are aware of their credit are not caught off guard.”
- Improve your score. If your score isn’t where you need it to qualify for the lowest interest rate, it’s time to get to work. Start by making sure you always pay your bills on time. You may also need to lower your credit utilization, which is how much of your available credit you are using.
If you’re looking for a lower interest rate, but you don’t want to open a new card, another option is to call your current issuer and ask for a lower APR, Detweiler says. The worst the card issuer can do is say no.
It’s not the end of the world, either, because while credit card interest rates are high, they still may be a cheaper way to finance debt than other options.
“It’s still cheaper than a payday loan,” Detweiler says. “It’s still [inexpensive] relatively speaking, and if you use it for a very short period of time you’re not paying the full APR. It doesn’t have to break the bank if you need it for a short term to tide you over.”
It’s hard to know exactly what your credit card’s APR will be before you apply. But you can make a plan to pay your balance in full every month, which will ensure your spending is never subject to an APR – good or bad.