What is a good Apr for a credit card? A credit card’s APR, or annual percentage rate, quantifies the cost of taking out credit.
In other words, if you carry a balance beyond your credit card’s grace period, your APR will determine the amount of interest the card issuer can charge on that balance.
If you want to know what is a good Apr for a credit card, compare it with the average credit card APR, which is currently above 16 percent. If the card’s APR is below the national average, that’s an excellent APR.
Even a credit card at the national average is a good option, especially if you’re looking at one of today’s best credit cards that comes with rewards, bonuses, and perks.
Try to avoid credit cards with APRs that are significantly above the national average. If you carry a balance on those cards, you could end up paying a lot of money in interest.
That is why some 0 percent APR credit cards offer an introductory period where they do not charge you interest on your purchases.
Understanding how credit card interest works will help you choose the credit card that is likely to offer the best APR package.
Here are some of the things to consider when looking at APRs as well as how to determine what is a good Apr for a credit card;
How Your APR Is Determined
Before we go on discussing what a good Apr for a credit card is let us first look into how a credit card Apr is determined.
The APR assigned when opening a credit card is determined not only by an applicant’s credit score or report but also by the U.S. prime rate.
The prime rate is used by major banks to set the rate on consumer loan products like credit cards. Lenders take the prime rate and tack on additional margins to mitigate the risk of default and gain profits on unpaid balances in the form of interest.
As of July 2021, the federal prime rate in the United States is 3.25%. For borrowers with strong credit an APR of prime rate (3.25%) plus a lender’s margin of 10% totally a 13.25% APR might be typical for a new account.
By contrast, a borrower with poor credit may pose a higher risk and therefore receive an APR of the current prime rate (3.25%) plus the lender’s margin of 20% for a high APR of 23.25%.
In addition to a borrower’s creditworthiness and the prime rate, lenders also examine financial records such as payment history, credit report, and debt-to-income ratio (DTI) when determining a borrower’s APR.
Credit cards offering rewards like points, miles, or cashback on purchases tend to charge higher APRs when compared to non-rewards cards.
If you pay your credit card bill in full and on time each month, the APR you receive may be insignificant because only balances carried or cash advances accrue interest. It is generally a good idea to avoid ever carrying a balance on a credit card.
Types of Credit Card APR
The majority of credit card companies offer various credit products that advertise a number of different types of APR.
If you read the terms and conditions of a credit card something everyone should do before applying for a card you’ll notice a range of different APRs.
Many credit cards have variable rates and understanding the different types of APRs offered is critically important when evaluating card options.
Some of the most common credit card APRs include:
Introductory APR or promotional APR: A lower rate (sometimes as low as 0%) offered to new customers for purchases or balance transfers on a limited-time basis.
Introductory offers can last from a few months to up to 20 months or more, after which the APR will increase to a variable rate based on cardholder creditworthiness.
Purchase APR: The rate applied when you make new purchases on a credit card and carry a balance forward into the next billing cycle. This is the most common APR type you will come across with credit cards.
Cash Advance APR: The rate for using a credit card to withdraw cash from an ATM or bank. The APR on cash advance transactions can be exorbitant and we do not recommend using your credit card for these transactions.
Balance transfer APR: The rate applied when you move an existing debit balance on one credit card account to a different card account. A balance transfer from one card with a high APR to a lower-rate card can be a smart way to eliminate debt faster.
Penalty APR: The rate applied to your card account when you violate your agreement by not making payments on time. Penalty APRs can reach as high as 29.99% of your payment is 60 days late.
How to Qualify for a Good Credit Card APR
The best way to get a good APR is to practice good credit habits. Here are some actions you can take right now to improve your score:
Make all of your credit card payments on time, every time. Payment history makes up 35 percent of your credit score, so make sure it’s positive.
Avoid maxing out your credit cards. Keeping your balances low will improve your credit utilization ratio.
Pay off as many of your outstanding balances as possible. Work toward becoming debt-free. As your credit score improves, look for credit cards with low-interest rates.
The better your credit score, the better interest rates you’re likely to be offered. Paying off your balance each month is ultimately the best way to avoid interest entirely.
What Is a Good APR for a Credit Card?
Now that you’ve gotten a hang of how credit card Apr works, let’s move over to what a good Apr for a credit card is. But then the lower your APR, the better for you.
Though we recommend no one ever carry a balance, advance cash or do anything else that would incur the interest fees associated with carrying a balance on a credit card.
A lower APR will reduce the impact if you forget to pay a bill or run out of options and must carry a balance.
Generally, credit card APRs are astronomically high compared to other means of borrowing and we advise never spending more money than you already have where possible, even when using a credit card to help build credit, for convenience or to earn rewards.
APRs are highly variable, so there is no short answer to what constitutes a “good” APR.
According to the Federal Reserve, as of May 2021, the average interest rate for current U.S. credit cards is 14.61% on all accounts.
On credit card accounts that maintain a balance and pay interest, the average interest rate is notably higher at 16.30%.
Banks regularly offer credit card APRs in the range of 12% to 24%. Generally, the higher your credit score, the better chances you have at scoring an interest rate on the lower end of the range.
Conversely, the lower your credit, the higher APR you can expect to receive. If you want to determine if a specific credit card has a good APR, these ranges and averages may give you a general starting point.
An APR below the national average constitutes a “good” APR. However, several cards are marketed toward consumers with subpar credit scores and are accompanied by abnormally high APRs. It’s not unheard of for these cards to have a variable APR over 25%.
Though the banks offering these cards advertise these products as helpful to consumers trying to build credit, carrying a balance at a 25% APR may create a cycle of consumer debt. It’s advisable to avoid carrying a balance on these high APR credit cards.
If you are planning a large purchase and want to carry a balance over a relatively short period of time, consider a 0% introductory APR credit card.
Cards offering 0% promotional rates provide time to pay off bills without incurring any interest charges. Keep in mind that after the introductory period ends, the APR reverts back to a variable rate based on creditworthiness.
What to Expect from Cards with Low APR
Cards that allow you to carry a balance at a lower APR tend to have fewer perks than many popular rewards credit cards and few will offer rewards like high cashback earning or bonus miles.
These cards may also not be marketed as heavily as cards with popular rewards programs, so you may have to do some research to find low-interest credit cards.
Cards with low APR or introductory 0% rates are generally offered to individuals with better credit scores, so consider actions you can take to improve your credit score prior to applying.
Credit cards usually charge balance transfer fees, including 0% introductory APR offers, though some cards waive this fee for balance transfers within the first few months of card membership.
Be sure to consider balance transfer fees if you are contemplating transferring a balance to a credit card with a 0% introductory rate.
What to Expect from Cards with High APR
Credit cards with higher APRs may offer perks like cashback, frequent flyer miles, or transferable points, but not all credit cards with high APRs earn generous rewards.
Many basic cards with high APRs are also offered to people with poor credit or who are otherwise deemed risky by the issuing bank.
If you pay your credit cards off every month, never miss a payment and never carry a balance, you will never pay a higher APR associated with a rewards credit card.
If this looks like how you use credit, the rewards from credit cards can be a valuable perk and you should check out the Forbes guide to the best rewards credit cards
On the other hand, if you are planning to finance a purchase with a credit card, sometimes miss payments or occasionally carry a balance.
Don’t be tempted by high APR credit cards offering rewards; what you earn in rewards will be minuscule in comparison to interest charges on high-APR credit cards.
Generally speaking, what is a good APR for a credit card, this is when your Apr is at or below the national average. A good APR for you, however, depends on your credit score.
Work on getting your score as high as possible to gain access to credit cards with lower interest rates.