Tons of tools exist to help you compare credit card offers side by side. But what exactly are you looking for? How can you tell what’s a good offer for you?
A credit card’s APR is often the most commonly promoted feature of a card, and it’s the one feature that you can easily compare across cards. Here’s how to recognize what is a good APR versus a bad one and choose the card that’s right for you.
What Is APR?
An APR is the annual percentage rate for a credit card or loan and it’s a way to express the interest you pay to borrow money. It represents the interest if it were applied by the year (though credit card interest is typically applied daily).
For credit cards, the main purpose of the APR is to compare one offer against another. You can’t know how much it’ll actually cost you to use the credit card without knowing exactly how much of a balance you’d carry and for how long, but comparing APRs can help you see which card would be cheapest to carry a balance on.
Types of credit card APRs include:
- Variable APR: A variable interest rate is tied to the prime rate, an industry norm that fluctuates with the Federal Reserve Rate that goes up and down with economic conditions. A variable interest rate will rise and fall over time, typically changing around once per quarter, over the life of the loan or credit card.
- Fixed APR: A fixed rate isn’t tied to the prime rate, so lenders can only change it if your credit score and history change, and they have to give you 45 days’ notice of any change. Fixed APRs are rare for credit cards but might be available for mortgages or other loans.
When you sign up for a credit card, your agreement could include several APRs that apply to different uses of the card: a purchase APR is for transactions where you buy stuff with the card, introductory APR is a lower promotional rate for a period when you first start using the card, penalty APR is a higher rate for a period if you make too many late monthly payments, cash advance APR is for money you withdraw using the card (a.k.a. cash advances) and balance transfer APR applies to any debt you move over from another credit card.
What Is a Good APR?
The average credit card interest rate in the United States was 16.27% as of August 2022, according to the Federal Reserve’s October Consumer Credit report. For those accounts that were charged interest (users who carried a balance), the average rate was 18.43%.
The rate you can expect on a credit card offers varies greatly depending on what’s on your credit report, so what’s considered a “good” credit card APR is different for each person.
According to the CFPB’s 2021 Consumer Credit Card Market Report, average credit card interest rates by borrower type for 2020 (the latest year available) were the following.
Average Credit Card Interest Rates
|Type||Credit Score||Appox. Average APR|
|Deep Subprime||579 or lower||24%|
Though the CFPB hasn’t shared later data on average APRs by credit score, the average interest rates have likely gone up slightly as the Fed rate has increased (and will go down as the Fed rate decreases).
How to Qualify for a Good Credit Card APR
Your credit card’s interest rate is based largely on your credit history, so improving and maintaining a high credit score is the best way to get a low APR. Raise or maintain your credit score by:
- Paying your bills on time. Payment history weighs heavily on your credit score, so make credit card payments (at least the minimum amount due) by the due date every month, and stay on top of your other debt payments and bills to avoid delinquent reports to credit bureaus.
- Opening a credit builder account. Some companies cater to folks who are new to credit with credit builder loans, cards or accounts. Take out a credit builder loan with Self; or open an account with Chime or Varo, both of which offer a credit card secured with a bank account.
- Using a secured credit card. Whether you’re new to credit or have a poor credit history, a secured credit card is a viable way to build your credit. You’ll have to make a deposit, which could be as low as $200, and you’ll start with a low credit limit. Many secured credit cards will raise your limit over time as you use the card and pay your credit card bill on time.
- Raising your credit limit — but not spending more. A higher credit limit can immediately decrease your credit utilization ratio, which is good for your credit score.
- Paying off outstanding debt, starting with credit cards. Paying down credit card debt will decrease your credit utilization, and paying off other debt will decrease your overall debt, both factors in your credit score.
- Not applying for new credit too often. A lot of hard inquiries — the kind of credit checks that happen when you apply for a new card — can ding your credit report and hurt your score. Instead, get prequalified offers for a card to get an idea of your potential interest rate and credit limit before officially applying.
Of course, your best bet to avoid paying interest at all is to pay off your balance in full each month. You’re only charged interest on a balance you carry past the due date.
How to Lower Your Credit Card’s APR
If you want a lower interest rate on a credit card you’re already using, your best chance is to improve your credit score and stay on top of payments. Those factors could contribute to a lower score the next time the credit card issuer evaluates your interest rate.
You might also be able to find a lower interest with a different credit card. If that’s the case, it could be time to switch. Just check in on any rewards you’ve earned with your existing card and figure out how long you have to use them before they expire. Don’t close that card when you stop using it; keeping it open is good for your credit age and utilization.
If you’re carrying a balance on an old card and want a lower APR, look for a lower-APR card that allows a balance transfer. Moving your balance to the new card could help you save money while you pay it down.
You might also be able to reduce the interest you’re paying by replacing your credit card debt with a debt consolidation loan. These loans pay off your credit card balance — or balances — so you just have one payment to make to the new lender. They’re best if you can get a loan with a lower interest rate than your credit card.
How to Compare Credit Card APRs
Aside from rewards, APR is often the most prominently advertised feature of a credit card. The purpose of the APR calculation is to give you an easy way to compare offers from multiple companies, so looking at these numbers side-by-side can give you a good idea of which offer is best for you.
But other factors can affect how much it’ll cost you to use a credit card, too. Look for annual fees and late fees.
Also consider promotional offers. Many credit cards offer an introductory APR, a lower rate for a period of around six to 12 months after you sign up for the card. Sometimes this rate is as low as 0%, which is incredibly enticing. After that, your APR will jump to your normal rate, though, and the normal rate applies to any balance you’re carrying, even if you made the initial charges during the introductory period.
Make sure you’re comparing apples to apples when you look at prequalified credit card offers. Triple-check the fine print to determine whether the offer advertised is promotional and what your regular rate would be.
Contributor Dana Miranda is a Certified Educator in Personal Finance who has written about work and money for publications including Forbes, The New York Times, CNBC, Insider, NextAdvisor and Inc. Magazine.