What is a good APR for a credit card?


The cost of borrowing funds is rising (along with everything else) because inflation is forcing the Federal Reserve to raising its rate by 25-basis-pointsthe highest level in 15 years.

The average credit card interest rate hit 20.40% in November, increased by 3.75% from Julyaccording to recent data from Fed. This means that the 35% of borrowers with a balance from month-to-month can expect higher interest charges—especially if they have a variable rate.

It is now even more important for borrowers to review their credit card APR to avoid unknowingly paying higher interest on their purchases.

What is the credit card APR?

The annual percentage rate (APR) for a credit card is the annual cost of borrowing funds from your card issuer and is sometimes called the card’s interest rate.

But not everyone pays interest on their credit card purchases. Interest is generally charged only on balances carried each month, said Rachana Bhatt, head of credit cards at PNC Bank.

In other words, you can avoid paying this extra cost by paying your bill in full each month—assuming you don’t have any previous interest payments to pay.

Your credit card may have a fixed- or variable-rate APR. With a fixed APR, your rate is locked in for a certain amount of time. An example of this is credit cards that offer 0% introductory APR for a few months after opening the account.

On the other hand, a variable APR fluctuates within a certain range that is tied to the Federal prime rate. Most credit cards have variable rates.

What is a good APR for a credit card?

The APR is considered a good rate if it is at or below the national average, which it currently sits at 20.40%according to the Fed.

This means that a credit card that offers a fixed rate as low as 20.40% or a variable rate with a maximum of 20.40% would be considered a good APR for the average borrower. It is important to remember that this percentage changes with the Federal prime rate, so what is considered a good rate today may change in the future as the Fed updates its rates.

That said, comparing your APR to the national average is not a one-size-fits-all approach. Credit card issuers often use a holistic approach to qualify you for the APR. This process takes into account not only the current state of the economy, but also what type of card you are applying for—such as rewards and retail cardswhich Bhatt says has a higher rate—and your individual credit history.

For example, in 2020 the Bureau of Consumer Financial Protection reported that borrowers with super-prime credit scores (greater than 720) had the lowest average APR of all credit score levels. Meanwhile borrowers with deep subprime credit scores (below 580) have the highest average APR.

How to calculate your monthly interest based on your credit card APR

There is a step-by-step calculation for determining your APR, but you should do a little research before crunching the numbers. You should find the interest rate on your card (hint: it’s usually listed on your monthly statement).

Let’s say your APR is 20.40% with an average daily balance of $1,500 and no additional fees during the 30-day billing period.

Any unpaid balances on your credit card that are carried over each month may accrue interest on a daily basis. So, we first need to convert your annual interest rate to a daily periodic rate.

APR / Number of days in a year = Daily periodic rate

(20.40%) / 365 = 0.00056

Calculate how much interest is charged each day based on your daily periodic rate and average daily balance.

(Daily periodic rate) * (Average daily balance) = Daily interest payment

(0.00056) * ($1,500) = $0.84

Your interest charges for the billing cycle are determined by multiplying your daily interest charges by the number of days in the cycle.

(Daily interest charge) * (Number of days in the billing period) = Interest for the billing period

($0.84) * (30) = $25.20

3 ways to lower your credit card APR

If you’ve checked your credit card statement and noticed you’re paying a higher APR than you’d like, there are a few options that can help you lower your rate.

Improve your credit

Qualifying for a credit card that offers a good APR comes with a good credit score. Luckily there are steps you can take raise your score if you are in the process of building or rebuilding your credit.

Your credit score is largely affected by your payment history, so building a track record of consistent on-time payments can help raise your score within a few months, depending on where you start. If you owe more than 30% of your credit limit, consider paying off your balances as this is the second biggest factor affecting your credit score.

Shop around for a better rate

If you’re in the market for a new credit card, you might want to stick with it decades-high APRs by waiting until the interest rates are reduced to submit the application. But if you need the funds quickly, consider comparing a few credit cards that suit your spending needs and weeding out those charging the highest APR.

Keep looking for cards that offer a low or promotional 0% APR for a set period of time after opening the account, says Bhatt.

If you plan to carry a balance every month, you can delay interest payments on your purchases or avoid them altogether by paying off the card in full before the introductory period ends. Keep in mind that the card will eventually revert to the standard APR, so consider whether you’re comfortable with this rate before applying.

Contact your card issuer

The process for applying for a low APR on your credit card varies depending on your issuer’s policies. For example, some credit card issuers may have a process to evaluate your account and automatically lower your APR without you having to contact them. Some issuers may not consider lowering your APR unless you directly request it.

If this is the case, you may be able to negotiate your rate by calling your issuer and requesting a reduction. Your issuer is under no obligation to accommodate your request, but borrowers with a long history of making on-time payments may have a better chance of reducing their APR than borrowers who recently opened their credit card and have not yet established their loyalty and credibility with an issuer.

The takeaway

Generally speaking, what is considered a good APR for a credit card is one that is at or below the current national average. It depends on the Federal prime rate and can vary from year to year.

This one-size-fits-all approach neglects to consider that some credit cards—such as those that offer generous rewards—have higher APRs than cards that offer basic perks. It also doesn’t take into account that every borrower has a different credit history, so what’s a good rate for one person may not be for everyone.



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