If you have good credit, a good APR is easy to come by — but what qualifies as a “good” annual percentage rate may vary based on several factors.
APRs are tied to a benchmark figure called the prime rate, which is the lending rate that banks offer to customers with the best credit. When the prime rate increases, credit card interest rates usually do, too. Some cards have APR ranges — for example, 13% to 23% — which may depend on the type of credit card and your specific creditworthiness. The better your credit score, the lower your interest rate. That’s why the lowest advertised APR isn’t always what you'll get.
Of course, if you don't carry a balance from month to month, the APR is irrelevant because you'll never be charged interest. But if you do carry a balance, as 47% of Americans who have credit cards do, then the APR will determine how much interest you pay over time.
How to evaluate APRs
As of November 2020, the average APR charged for credit card accounts that incurred interest was 16.28%, according to the Federal Reserve.
But not all credit cards are created equal — and some will be more expensive to carry a balance on than others. For example, a rewards credit card with benefits and perks is likely to have a higher APR than a balance transfer credit card.
As of November 2020, the average APR charged for credit card accounts that incurred interest was 16.28%, according to the Federal Reserve.”
And different transactions — purchases, balance transfers and cash advances — may have different APRs on the same card. There’s even sometimes a penalty APR for late payments. These rates are spelled out in the credit card's terms and conditions, so be sure to review them.
If a low APR on purchases is your priority, you might also consider researching options from credit unions, where interest rates on credit cards tend to be lower than at major banks.
What to expect from cards with low APRs
Depending on the issuer, low-interest credit cards usually require a good credit score — 690 or higher — to qualify.
These cards may lack some of the bells and whistles of rewards credit cards, but they can save you money on interest if your account has a balance each month — such as from financing a large purchase or transferring an existing high-interest balance to the card.
An ideal APR is a 0% introductory offer that lets you avoid interest payments for a period of time. The U.S. Bank Visa® Platinum Card, for example, offers a lengthy 0% intro APR period: 0%* intro APR for 20 billing cycles on purchases and balance transfers*, and then the ongoing APR of 14.49% - 24.49%* Variable APR.
The second-best option is a low ongoing rate. For example, the Lake Michigan Credit Union Prime Platinum Card makes NerdWallet’s list of best credit union credit cards. The ongoing APR is 6.25% Variable.
What to expect from cards with high APRs
Rewards credit cards and store credit cards tend to have higher APRs. They may offer valuable benefits, perks or discounts, but they aren't ideal if you carry a balance each month, as the interest can eat away at rewards.
As an example, consider the Citi® Double Cash Card – 18 month BT offer, which made NerdWallet’s roundup of best rewards credit cards. It earns 1% cash back on every dollar you spend, then another 1% cash back for every dollar you pay off. It offers an intro 0% intro APR on Balance Transfers for 18 months, and then the ongoing APR of 13.99% - 23.99% Variable APR.
Store credit cards can have even higher APRs than general rewards cards. Consider the Banana Republic Visa® Credit Card: The ongoing APR is 25.99% Variable.
And APRs may be higher still on some store cards' deferred interest promotions, which advertise “no interest if paid in full” within a certain timeframe. (If you still owe money when the promotional period ends, you’ll be charged all the interest that’s been accumulating retroactively.)
Qualifying for a better APR
While you may not be able to control all factors that determine your APR, you can be proactive in maintaining or polishing your creditworthiness. You can also take a shot at negotiating a lower APR with your creditor.
If it turns out your credit score needs a boost, the following steps could help you qualify for a lower APR in the future:
Check out your credit score.
Make payments on time.
Lower your credit utilization — don’t use more than 30% of available credit.
Avoid applying for several credit cards at once,
Keep your current no-annual-fee credit cards open and active with small purchases.
Monitor your credit report; get a free report from each of the three major bureaus every year at annualcreditreport.com.
With a few moves, you can set the foundation for a lower APR that leaves more money in your pocket.