Credit cards are a fabulous way to make purchases without carrying cash. They offer rewards, discounts, and other benefits. However, credit cards come with a cost – the Annual Percentage Rate (APR). APR is the interest rate you pay on the balance you carry on your credit card.
It is essential to understand what is a good APR for a credit card to avoid paying high-interest charges. In this article, they will discuss the ideal APR for a credit card.
What is APR?
Before you dive into the ideal APR for a credit card, do understand what APR means. APR is the interest rate charged to your credit card balance. It is generally a percentage of the amount you owe.
For instance, if your APR is 18%, you will pay $18 for every $100 you borrow. APR includes interest and fees, such as balance transfers, late payments, and annual fees. Therefore, comparing the APR of different credit cards is essential before selecting one.
What is a Good APR for a Credit Card?
A good APR for such a card depends on your credit score and financial situation. The average APR for credit cards ranges from 15% to 22%. However, you may qualify for a better APR if you have a great credit score.
The best way to get a fair APR is to maintain a good credit score, pay your bills very timely, and keep your credit utilization ratio low. The lower the APR, the less you will pay interest charges. Therefore, you should aim for a credit card with an APR lower than 20%.
SoFi experts say, “APR varies based on the credit card type too.”
Factors that Affect APR
Several factors, such as credit score, credit history, income, and debt-to-income ratio, influence APR. You may qualify for a lower APR if you have a decent credit score. On the other hand, if you have a poor credit score, you may have to pay a higher APR. Credit card companies always use your credit history to assess your creditworthiness.
They look at your payment history, credit utilization ratio, and the length of your credit history. If you have a stable regular income and a low debt-to-income ratio, you may qualify for a lower APR.
How to Lower Your APR?
If you are currently paying a high APR on your credit card, there are ways to lower it. You can negotiate with your card company to reduce your interest rate. You can also transfer your remaining balance to a credit card with a lower APR.
However, be aware of balance transfer fees and make sure the transfer is worth it. Another way to lower your APR is to improve your credit score. You can do this by paying your bills on time, reducing your debt, and not applying for new credit.
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The ideal APR for a credit card is one that is lower than 20%. A good APR depends on the credit score and financial situation. If you have a good credit score, you may qualify for a lower APR. APR is influenced by several factors, such as credit score, credit history, income, and debt-to-income ratio.
If you are currently paying a high APR, you can negotiate with your card company, transfer your balance to a card with a lower APR, or improve your credit score. Remember to compare the APR of different credit cards before selecting one.