An annual percentage rate (APR) on a credit card is the annualized version of its interest rate. Most credit card APRs are variable, which means that your rate can fluctuate based on the prime rate, the lowest interest rate at which banks lend commercially.
The average variable credit card APR is 16.81% as of April 5, 2018, which means that a good APR credit card should have a rate at least below that.
Keep in mind that your credit card's APR is irrelevant if you pay off your balance in full each month. But if having a low APR is still a priority for you, it's important to understand how APRs work and how to find a good APR credit card.
How Credit Card Issuers Determine Your APR
Every credit card has its own APR and fee structure, which you can find in the card's Schumer Box. You can typically find this box on a credit card's landing page or during the online application process.
Here's an example of what you'll see:
Depending on the credit card, it may offer just one APR to all approved card holders, a few options, or a range. Because rewards credit cards often offer more value to cardholders, they often charge higher APRs than basic credit cards.
If a credit card issuer offers more than one APR on a card, the APR it assigns to you is based on how the issuer views you as a risk.
One way they assess how risky you are is by checking your credit scores. People with higher credit scores tend to be less risky borrowers than people with low credit scores.
Your credit scores aren't the only thing lenders consider, though. They'll also look at other risk factors, such as your past payment history, any negative items on your credit report, and your debt-to-income ratio.
As a result, you can still end up with a high APR with an exceptional credit score.
Do You Need a Good APR Credit Card?
It's important to weigh the pros and cons of having a good APR credit card. For example, if the card doesn't offer rewards or have any other bells and whistles, it's only a good option if you expect to carry a balance from month to month.
But if you plan to pay off your balance on time and in full each month, it may be worth taking a higher APR to gain extra benefits like rewards and perks.
Consider your spending habits before choosing a credit card. If you think there's a chance that your spending could get out of control, opt for a card with a low APR. It's generally not worth it to earn rewards if you're paying interest to get them.
How to Find a Good APR Credit Card
If you want to get a credit card with a low APR, it's important to know where to look and what to look for.
There are two types of good APR credit cards: 0% APR cards and cards a with low ongoing APR.
Zero percent APR cards typically offer no interest on purchases, balance transfers or both for a set period, typically between six and 21 months. But once that promotion is over, your APR could jump to an above-average rate.
A good APR credit card with a 0% APR is a solid choice if you need to finance a large purchase or pay down high-interest credit card debt.
On the flip side, a credit card with a low ongoing APR typically doesn't offer an upfront promotion. It's a better option if you expect to carry a balance in the long run.
Credit unions typically offer lower interest rates than traditional banks, but they don't often offer long 0% APR promotions. Major issuers like Chase, Bank of America and Citi, on the other hand, offer credit cards with long 0% APR promotions but don't generally offer below-average APRs after the promotions are over.
So, check out your local credit unions and compare their APRs with the best credit cards from major issuers.
How to Avoid Paying Interest Regardless of Your APR
While it's important to make sure that you have a good APR credit card, it's even more important to use your credit cards in a way so that you avoid paying interest altogether.
You can do this by paying off your balance in full each month before the due date. Since credit cards typically offer a grace period between the statement date and due date—typically 21 days or more—you'll have plenty of time to pay your bill before interest begins to accrue.
Remember, there's no benefit to carrying a balance on a credit card and paying interest. It doesn't help your credit any more than paying off your balance in full. Here are a few ways to ensure that you never pay interest on your credit cards:
1. Avoid Spending More Than You Have
While your credit card isn't directly tied to your checking account like a debit card, treat it like it is. Avoid spending more than you can pay off at any given time, preferably through current income rather than from savings.
If you're having a hard time doing this or don't want to spend a lot of time checking both accounts, consider using a tool like Debitize. You simply use your credit card like normal, and Debitize deducts the amount you spend from your checking account each day. Then at the end of the month, it pays off your balance for you.
2. Get On a Budget
It can be hard to avoid overspending if you don't set any boundaries. Create a budget and set spending goals for each of your major categories. Then keep track of where your money is going to make sure you stay in line with your goals.
3. Pay Early
If you always wait until the last day to make a payment, there may be times where you forget or don't have enough cash in your checking account to cover the debt.
To avoid any mistakes, consider paying off your balance as soon as your monthly statement closes, or make payments throughout the month while the statement is still open.
Alternatively, consider setting up automatic payments, so you don't have to even think about it. Just be sure you always have enough money in checking to cover the payment.
Working Toward a Good APR Credit Card
While the idea of having a low APR is nice, it may not be in the cards for you—at least not yet. If your credit score is a little low, take these steps to improve it so that you can increase your chances of getting a good APR credit card in the future:
- Make all your payments on time.
- Use less than 30% of your available credit (the less, the better).
- Avoid applying for credit cards and loans unless necessary.
- Keep an eye on your credit report to spot negative items, errors, or potential signs of identity theft.
- Track your credit scores to see your improvements.
- Pay down other debts to lower your debt-to-income ratio.
As you develop these habits, you'll steadily improve your credit to the point that you'll have a better chance of getting approved for a good APR credit card.
With such a card in your wallet, you can save yourself a lot in future interest payments, leaving you more money for your financial goals.