Many factors are considered when applying for a new credit card, including an Annual Percentage Rate (APR). Although it is not too high a rate, it can generally significantly affect your financial life. What is a good APR for credit card? Here is the answer from Hanfincal (hanfincal.com).
1. What is a good APR for a credit card?
A good APR for a credit card depends on your credit score. And what defines a “good APR” is determined by many criteria. If the APR on the card is less than 14%, which is the current average interest rate, that is an excellent APR and usually for a good credit score. If you have an excellent score, you can qualify for an even better rate, such as 10%.
Furthermore, an ideal APR for a credit card is 0%. The 0% credit card could help you avoid paying interest on large purchases entirely or reduce the cost of existing debt. However, you must have at least good credit to qualify for such a card, and 0% APRs are only available for a limited time.
Credit card APRs can also fluctuate in response to changes in federal interest rates. The APR on credit cards is variable, which means it is linked to another interest rate and changes based on the underlying rate.
2. How to determine your APR?
There are three primary factors to determine your APR:
- A credit score: It is a key factor lenders consider when determining your APR. A higher credit score is generally considered less risky and approved for a good APR (14% or less). If a credit card has a range of APRs, the issuer determines your APR based on your creditworthiness or how risky you are as a borrower.
- Type of credit card: Not all credit cards are created equal. A rewards credit card with many benefits and perks, for example, is likely to have a higher APR than a basic card.
- Other factors: This include debt-to-income ratio, previous payment history, and any negative items on your credit report. Even if you have excellent credit, it does not guarantee that you will receive a lower APR. A person with good payment history, credit score, and a lower DTI ratio will be eligible for a lower APR.
Plus, APR is used by credit card companies to calculate the interest rate on your credit card. If you’re curious about how interest is calculated, the guide on how to calculate interest rates using APR can help.
3. How to compare APR offers?
A fair comparison APR offers when you compare the same types of credit cards. Compare cash back credit cards to other cash back credit cards, travel credit cards to other travel credit cards, etc. Here are two examples of comparing a good APR offer based on your needs and requirements:
- Consider this example if you find a credit card offers a promotional APR on purchases and/or balance transfers.
- The Blue Cash Preferred Card offers a 12-month introductory APR of 0% on purchases (then 14.24% to 24.245 variable APR) but not on balance transfers.
- There are no 0% intro APR offers for the Chase Sapphire Preferred.
- If you find one of the best rewards credit cards, consider these two options:
- Chase Sapphire Preferred® Card: variable APR ranging from 16.24% to 23.24%.
- American Express Blue Cash Preferred® Card: 14.24% to 24.24% variable APR.
While you can avoid interest by paying off your balance in full each month, it’s a good idea to select a credit card with a low APR in case you need to carry a balance. Compare and select which APR and credit card benefits are best for you.
4. How to qualify for a good credit card APR?
There are several points to consider for a good credit card APR, as listed below:
- Payment history is essential in determining a good credit card APR because it accounts for 35% of a credit score. Lenders are more likely to offer a lower APR than those with a long history of paying their bills on time.
- The credit utilization ratio is the following factor lenders usually consider when determining how much APR to charge on a credit card. A good credit utilization ratio is typically less than 30% — both on each card and across all accounts.
- Applying for one with a limited-time or promotional offer for those looking to finance a large purchase, a credit card with a 0% APR introductory rate is a viable option.
Improving your credit score is one way to get a credit card with a low APR. Some options are:
- Make on-time payments on your bills.
- Repairing credit report errors.
- Reducing the number of new credit applications.
- Lowering your credit utilization ratio.
- Overcoming the consequences of a thin credit file.
- Maintaining older accounts.
5. What to expect from a high-APR credit card?
Although the APR is high, there are many benefits to having a high-APR credit card, such as:
- There are numerous offers for perks such as cash back, frequent flier miles, or transferable points.
- Many basic cards with high APRs are also made available to people with bad credit or deemed risky by the issuing bank.
- You will never pay a higher APR associated with a rewards credit card if you pay off your credit cards every month, never miss a payment, and never carry a balance.
6. What to expect from a low-APR credit card?
Many people prefer a low-APR credit card because of the following benefits:
- It allows you to carry a balance at a lower interest rate, thereby avoiding costly penalty APR when you do not pay off the balance by the due date.
- A few will provide incentives such as high cash back earnings or bonus miles.
However, a low-APR card has some drawbacks, such as:
- It offers fewer benefits than many popular rewards credit cards.
- These cards may not be as heavily marketed as cards with well-known rewards programs, so you may have to dig to find low-APR credit cards.
- Individuals with higher credit scores are more likely to be offered cards with low APRs or introductory 0% rates.
- Credit cards commonly charge balance transfer fees, including those with 0% introductory APR offers.
If you cannot apply for a low-APR credit card because of not having a good or excellent credit score, you can find ways to lower your current one. There are many options to help you on how to lower your APR.
What is a good APR for credit card will also be determined by your credit scores and history and the type of credit card you are considering. When looking for a new credit card, it’s critical to shop around and compare APRs to ensure you get the affordable one for you and your financial situation. Is this Hanfincal (hanfincal.com) information valuable to you? Please share your thoughts with us on social media. We are expecting you.