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I Never Carry a Balance on My Credit Card – Should I Consider APR When I Apply for a New Card?

April 1, 2014
Credit Card Basics, Credit Cards
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There are people out there who have elevated responsible credit card use to an art form. In addition to paying on time and in full, they’re racking up serious rewards with every swipe.

If this sounds like you, you’re probably familiar with what to look for in a new card: options for redeeming points, cash-back rate and luxury travel perks. Assuming you pay off your balance every month, there’s no reason to look at a potential card’s interest rate, right? Actually, by passing over a card’s annual percentage rate (APR) before applying, you may be making a mistake. Check out the details below to see what you’re missing when you overlook APR.

If you pay in full, you’re making the right move

First and foremost, if you avoid paying interest on your credit card purchases by paying in full every month, take a bow. This is one of the best things you can do for your finances for many reasons, including:

  • Avoiding interest charges – by paying in full, you’re dodging an expensive bullet.
  • Staying out of debt – paying off each month’s charges means you’re not sinking into debt. This is good for your credit score and your overall stress level.
  • Keeping financial options open – if you carry a balance on your credit card, you might be making yourself a less desirable candidate for a home or car loan. By paying in full, you ensure your financial future is full of possibilities.

In short, paying off your credit card bill every month is a savvy move. Kudos to you if you’re making it happen!

» MORE: How is credit card interest calculated?

You never know what the future holds

People who pay off their cards each month often assume that they’ll be able to do so forever. They start looking at every feature except APR when they’re shopping for a new card. This approach may seem reasonable in the moment, but it could come back to bite you.

No one has a crystal ball, so you never know what could happen in the future. Making your credit card payments in full is do-able when you have a well-paying job and are fortunate enough to steer clear of emergencies. But what if you lost your job or got blindsided by a crisis? You might need to put charges on your card that you can’t pay off in a month’s time. If that happens, your card’s APR is going to matter in a big way.

Many people rationalize neglecting their card’s APR by assuming they’ll be able to do a balance transfer to a 0% card if they’re faced with a big expense. But it’s important to note that these offers are only available to people with good, or in some cases excellent, credit. The credit score you have today isn’t necessarily the credit score you’ll have tomorrow.

If you lose your job and miss a few bill payments or have to pay for an emergency that drives up your credit utilization ratio, your sterling credit could take a hit, which will make it tough to do a balance transfer. This means you could get stuck keeping a big charge on your regular card, and if you never bothered to check its APR, you could be in for an expensive surprise.

All things being equal, use APR as a tie-breaker

In the end, if you have a solid history of paying off your credit card each month, a new card’s APR shouldn’t be the main thing you look at when deciding whether or not it’s right for you. Most low interest cards don’t offer primo rewards, so don’t pass up airline miles or other perks if the chances you’ll need to use the low APR feature are low.

When shopping for a new card, the Nerds recommend that you use APR as a tie-breaker. In other words, if you’re trying to decide between two similar cards, go with the card that offers the lower APR. This will be an easy way to make your final choice and could end up coming in handy.

Another way to stay prepared for the future is to find a card that carries an ongoing low APR and keep it open forever. You can use a high-rewards card for your daily spending, but having a low-interest card in your portfolio will help you hedge against unexpected events.

The bottom line: Even if you pay off your credit card balance in full every month, it’s still a smart idea to keep APR in mind when you’re selecting a new card — you never know what the future holds. But don’t let interest rate be the primary factor you use when picking a card; instead, use it as a tie-breaker and keep one low-interest card on-hand, just in case.

Choosing cards image via Shutterstock