Credit Card APR: What’s a Good Rate?

APR is an acronym for annual percentage rate and what it tells you is what you'll pay if you carry a balance on your credit card. You probably understand that a lower APR is better, but what’s a good rate? And should you compare credit card offers strictly based on which one has the lowest APR?

The answer may surprise you. Your APR might not be that important after all.

People often use the terms APR and interest rate interchangeably. Actually, although they’re closely related, APR and interest rate aren’t exactly the same.

APR is expressed as a percentage and shows how much you would pay to borrow funds over the course of a year. Unlike a standard interest rate, APR also includes fees you might be charged on your account.

Credit card APR is charged differently than interest on other types of financing. As long as you pay your balance in full by your monthly due date, you can typically avoid paying credit card interest altogether.

Credit card rates have been trending upward over the past few years. According to the Federal Reserve, the average rate for credit card accounts that assessed interest was 16.86% at the end of the fourth quarter of 2018. By comparison, that same average rate was 14.99% a year earlier.

The APR ranges offered on credit cards vary based on several factors, and you won’t know the actual rate until after you’re approved. Depending on the condition of your credit, you may not qualify for the lowest advertised rate.

APR can also differ based on the type of account you’re seeking. According to creditcard.com’s weekly rate report, here are the average APRs currently being offered per card type:

• Low interest cards: 14.67%
• Cash back cards: 17.58%
• Business cards: 15.24%
• Balance transfer cards: 16.90%
• Rewards cards: 17.55%
• Credit cards for people with bad credit: 25.33%

Regardless of where your rate starts, it’s important to understand that most credit cards come with variable APRs, which can change over time. A variable APR may increase or decrease based upon one of three factors: the market, an index, or the U.S. prime rate.

For people who do revolve a balance on their credit cards, getting a lower APR is important. An APR that is just two percentage points higher could cost more than $135 extra in interest charges per year.

Here are a couple of tips that might help you secure a lower APR credit card.

• Work to improve your credit scores
• Search local credit unions or small banks for low-rate card offers

Credit card companies generally don’t commit themselves as to which credit scores might gain you the lowest APR, but according to creditkarma.com, a very good to excellent credit score is anything above the mid-700s. Fair to good is considered mid-600s to mid-700s, but that may not be good enough to get you the best deals.

If you’re following credit card best practices, you pay your balance off in full every month to avoid paying interest. Provided you have a good track record of paying your full monthly balances, the APR probably won’t be the most important factor to consider when you shop for a new credit card. Instead, you may want to compare the following:

Annual Fees

An annual fee may seem like something you want to avoid, but it doesn’t have to be a deal breaker. For example, some premium rewards cards offer benefits, credits, and rewards that far outweigh their annual fees if you're in a position to take advantage of them. Only you can determine whether an annual fee is worth the benefits you’ll receive.

Rewards and Sign-Up Bonuses

If you have good to excellent credit, you may be able to qualify for attractive rewards or even a sign-up bonus on a new credit card account. Keep in mind that you should never overspend for the purpose of chasing credit card rewards. However, if you can manage a rewards card responsibly, you may be able to earn extra perks for your regular spending.

Credit Limits

When it comes to your credit card limit, the higher it is the better for you, provided you exercise caution while spending. Of course, you won’t know if you qualify for a card’s highest advertised limit until after you’re approved. Having a high limit shouldn’t be a license to overspend. Rather, a high-limit card can be beneficial if it helps you keep your credit utilization ratio at a lower level—a plus for your credit scores.

Beverly Harzog, credit card expert and consumer finance analyst for U.S. News & World Report, says the most important thing you should do before researching credit cards is to “decide what type of card you’re looking for.” She continues, “If you want a new rewards card, think about your spending patterns, so you can match the rewards to the way you spend your money.”

Credit cards can offer excellent benefits when managed properly. If you keep your payments on time and your credit utilization low, credit card accounts have the ability to be powerful, credit-building tools. Plus, there’s nothing like earning rewards or cash back as a bonus for purchases you need to make anyway.

That being said, it’s important to know yourself when it comes to your credit card management habits. According to creditcards.com, 38% of U.S. households carried a revolving balance in 2018. If you’ve struggled with credit card debt in the past, the size of your new credit card’s APR could matter a great deal.