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.
Is the APR on that credit card offer good or sky high?
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 balances on your cards.
What is a good APR for a credit card?
The average credit card interest rate currently sits well above 19 percent due to a recent spate of large interest rate hikes by the Federal Reserve, so anything lower would be considered good.
“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, associate 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 always try 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.
If you foresee carrying a high credit card balance, beware of any card in which your APR is likely to be north of 20 percent. And be advised that there’s a handful of cards — including some offered by retailers — that advertise APRs of 29.99 percent or more.
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. 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 percent; however, that isn’t always realistic,” said 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 0 percent APR or 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 yours 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.
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 16 percent 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 an APR in the mid- to low-teens. But even a better-than-average rate can help you save money. If you reduce your APR by just three percentage points from the average, you’ll save yourself $132 per year in interest charges on a $5,000 balance (assuming a $150 monthly payment).
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 can qualify for until you apply, said credit and personal finance expert Gerri Detweiler.
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. That’s even more likely now that card APRs are at record levels.
But you can take some steps to try to avoid nasty surprises when you apply for a new credit card. Here’s how:
- 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 you can get free weekly copies of your report through 2023. “If everything is shipshape, you’re more likely to qualify for the lower tiers,” said Eric Bahl, senior director of direct marketing 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 to improve your credit score. Start by making sure you always pay your bills on time. You may also need to lower your credit utilization ratio, which is how much of your available credit you are using.
How can you lower your credit card’s APR?
If you’re looking for a lower interest rate but you don’t want to open a new card, you can call your current issuer and ask for a lower APR, Detweiler said. 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 said. “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.”
If your card issuer declines your request for a lower APR, you may be able to qualify for a 0 percent APR on a balance transfer credit card for a limited time with good or excellent credit. While balance transfer cards usually charge a 3 percent to 5 percent balance transfer fee, many of them offer lengthy 0 percent APR periods — sometimes as long as 21 months.
But even if your card issuer declines your request for a lower APR, you can always try again. Card issuers are willing to work with you to lower your APR, so don’t give up if you’re declined once.
If you can’t get a lower APR and you’re struggling with debt, speak with a financial counselor. They can help you determine the best options for debt payoff based on your individual situation, and may even be able to negotiate a lower credit card payment and APR, though there may be a fee involved.
It’s hard to know exactly what your credit card’s APR will be before you apply. But you can always plan to pay your balance in full every month, which will ensure your spending is never subject to an APR — good or bad.