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A good APR for a credit card is one below the current average interest rate, although the lowest interest rates will only be available to applicants with excellent credit. According to the Federal Reserve, the average interest rate for U.S. credit cards has been approximately 14% to 15% APR since early 2018. Let's take a closer look at credit card APRs and how to score a low one.
How Your Credit Card APR Is Determined
The term APR stands for annual percentage rate, which is the rate lenders charge when you borrow money. It represents the yearly cost of funds, but it can be applied to loans made for much shorter periods of time. If you pay off your balance in full every month, you may never have to pay APR on your credit card. But if you carry a balance, your card issuer will charge you interest on the balance. You may use our credit card APR calculator to figure out your monthly payment with interest.
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 website's landing page or during the online application process.
Here's an example of what you'll see in the card's Schumer box:
Depending on the credit card, it may offer just one APR to all approved cardholders, a few options or a range. Because rewards credit cards offer more value to cardholders, they often charge higher APRs than basic credit cards. You'll typically find the highest credit card APRs on store credit cards and credit cards for bad credit.
If a credit card issuer offers more than one APR on a card, the APR it assigns to you is based on your creditworthiness, or how the issuer views you as a risk.
One way they assess how risky you are is by checking your credit scores. People with high credit scores tend to be less risky borrowers than people with low credit scores.
Your credit scores aren't the only risk factors lenders consider, though. They'll also look at your past payment history, any negative items on your credit report and your debt-to-income ratio (DTI). As a result, you can still end up with a high APR even if you have a good credit score.
Is It Important to Have a Good APR?
APR is one of many key features of a credit card. It's important to weigh the pros and cons of having a card with a good APR against the expense of having other more competitive terms and benefits. It largely depends on how you use your credit cards. For example, if you pay your entire statement balance every month, then you'll avoid interest charges and the APR won't really matter. In this case, you may choose to earn competitive rewards and enjoy the valuable benefits often available on cards with higher APRs instead.
But if you'll need to carry a balance on your credit card, then using a credit card with a lower APR can save you money on interest charges. Just keep in mind that the cards with the lowest APRs won't typically offer you competitive rewards for spending or other premium benefits. So you have to weigh the value of having a card with a low APR against the opportunity to receive other rewards and benefits to determine how important a low APR is to you.
How to Compare Credit Card Interest Rates
To get the best rate possible, compare the interest rate of a credit card you're considering with other cards. For example, rewards credit cards will typically have higher interest rates than cards that don't offer rewards. Also, cards that are designed for people with lower credit scores will almost always have higher interest rates than those geared to applicants who don't have any credit problems.
Credit cards often have several different APRs. For example, many credit cards have a 0% introductory APR or another lower-than-standard rate that applies for a limited time after the account is opened. Many credit cards also have higher APRs that apply to cash advances, or a penalty APR that's imposed when the account holder misses payments. Compare these rates on the cards you're considering. While the standard APR will be the most important consideration, it's still a good idea to familiarize yourself with all the various rates a credit card charges.
How to Get a Good APR
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 credit cards that carry low APRs: 0% APR cards and cards 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 credit card with a 0% APR introductory rate is a solid choice if you need to finance a large purchase or pay down high interest credit card debt—and are confident you can pay the full balance before the promotion period ends and your rate spikes.
Alternatively, a credit card with a low ongoing APR typically won't offer a 0% APR promotion. This may be a better option if you expect to carry a balance regularly.
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. Experian CreditMatch™ can also pair you with low interest credit cards matched to your credit profile.
How to Avoid Paying APR Altogether
While you may want to make sure you have a good APR credit card, it's even more important to use your credit cards in a way so you avoid paying interest altogether.
You can do this by paying off your balance in full each month before the due date. Because 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, you can 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.
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 when 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 your checking account to cover the payment.
The Bottom Line
If you're going to pay interest on your credit card, then you should try to find one with a good APR. But in the long term, it's even better to avoid interest by paying your monthly statement balance in full whenever you can.