What is a reasonable interest rate for a credit card?

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One of the questions I’m most frequently asked is, “what’s a good interest rate for my credit card?” Before I can answer this question, I think it’s important to clarify a few definitions. When most people think about the “interest rate” for their credit card, they are referring to their APR – or Annual Percentage Rate. This is the interest rate you will pay on your credit card the majority of the time – more on this below.

One of the questions I’m most frequently asked is, “what’s a good interest rate for my credit card?” Before I can answer this question, I think it’s important to clarify a few definitions. When most people think about the “interest rate” for their credit card, they are referring to their APR – or Annual Percentage Rate. This is the interest rate you will pay on your credit card the majority of the time – more on this below.

But, you can also have an Intro APR, which usually lasts for a few months to a year, and will be lower than your regular APR. Many cards offer a 0% Intro APR.

You will also probably have a Penalty APR, which is a higher interest rate that you’ll be charged if you’re late on payments or go over your credit limit. These get as high as 29.99%. Your credit card can legally charge you a Penalty APR if you’ve missed two consecutive monthly payments, and they let you know in writing 45 days in advance that they’ll be imposing the higher APR. Note that a Penalty APR is different from a late fee – you can still be charged a late fee even after being late on just one payment.

So, what’s a good APR? Well, average APR’s are just under 17% these days, according to the Fed. But, different card categories will have different rates. For example, rates on cash back cards are usually above that range, up to around 20%, because they come with additional perks. Low interest cards can be below that range, but might not offer as many rewards.

At the end of the day, your interest rate will depend on how good your credit is. If you have an excellent credit score (a FICO score of 740 or higher), you shouldn’t be paying more than around a 13% APR, and realistically you want to aim for the 10% neighborhood. If you have a good credit score, (FICO score between 670 – 739), then you should aim for 15% or lower. If you have bad credit (FICO score below 670), 20% is more realistic, and you should try to keep it below 25%.

And perhaps most importantly, always remember that you will only be charged interest at your APR if you incur a balance on your credit card – i.e., if you don’t pay your bill entirely at the end of each billing period. If you plan on carrying a balance, or even if there is just a risk you might, you should evaluate APR’s closely. But, if you always plan on paying your bill in full each month, you can disregard APR’s entirely in favor of the other perks your card offers.

Categories Credit Cards

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