What Is a Good APR for a Credit Card, and How Can You Get One?
Whether you already have a credit card or you’re looking to apply, few things matter more than a good APR.
May 31, 2022
Credit cards can be fantastic financial tools when used correctly, but not every card is created equal. There are many factors to consider, and the annual percentage rate (APR) is at the top of the list. It impacts how much a card will cost you.
But what exactly is a good APR for a credit card?
To answer this question, we’ll dive into credit card interest rates, what is generally considered “good” and how to secure the best deal for yourself.
What is APR?
To differentiate between an amazing and a poor credit card APR, you need to understand what the term means.
The APR expresses the charges you’ll rack up on your credit card balance over a year. It includes not just interest but also additional lending fees, which differentiates it from the simple interest rate.
You can find your current credit card’s APR on your monthly statement — it’s sometimes called a “purchase APR.” Or, when applying for a new credit card, the APR range will be disclosed in the terms before or during the application process.
Keep in mind that there may be different APRs for one card. We’ve already covered the purchase APR above, but you may also encounter a penalty APR if you break your payment agreement — by making late payments, for example.
In addition, your card may have a cash advance APR on any money you withdraw from an ATM. Cash advance and penalty APRs are generally higher than the purchase APR.
APR can vary significantly between types of credit cards and cardholders, so it’s essential to know a good APR when you see it.
Does APR always matter?
APR is important when considering a credit card, but it’s not always a concern.
Since your credit card only charges you interest on balances you carry into a new billing cycle, you can avoid interest charges altogether if you pay your statement balance in full once you receive your bill.
A credit card you pay off every month can benefit your finances. Many financially savvy people use rewards credit cards to pay for their daily expenses, then pay off each statement. This allows them to earn the cash back or reward points each month without paying a penny of interest.
If you plan to pay off your entire credit card balance every month, you don’t need to overly concern yourself with APR.
How do credit card issuers calculate APR?
Credit card companies don’t just pull their APR from thin air. They partly base it on economic conditions. More specifically, the prime rate — the interest rate big banks give their most creditworthy customers — is strongly affected by the federal funds rate, which the Federal Reserve alters to manage the economy.
For instance, in times of recession, the federal funds rate is likely to be lower, which means a lower prime rate and a lower APR for many borrowers.
Then, there’s the type of card to consider. Rewards credit cards — those offering cash back, for example — will often have a higher APR than a more basic card.
Perhaps the biggest factor of all in determining APR is your credit score.
How your credit score affects credit card APR
Your credit score is your financial report card; lenders and banks use it to see how risky it would be to lend you money. There are a few credit scoring models, but since 90% of lenders use the FICO model, we’ll use that as our baseline.
If you have bad credit — generally seen as a score of 670 or below on the FICO scale — you’ll either be declined for a traditional credit card altogether or land a high APR. On the other hand, if you have a very good credit score — 740 or above — you have a better chance of securing a low APR.
Five key factors affect your FICO Score:
Payment history: Missed and late payments have a negative impact. This factor makes up 35% of your score.
Credit utilization: A lower amount of revolving debt compared to your credit limit has a positive impact. This factor makes up 30% of your score.
Age of credit history: The longer you’ve had your accounts, the better. This factor makes up 15% of your score.
Credit mix: A more diverse credit mix — such as having a personal loan, an auto loan and a credit card — is seen as a good thing. This factor makes up 10% of your score.
New credit and inquiries: If too many lenders perform a hard pull after you apply for loans, it can have a negative influence. This factor makes up 10% of your score.
What is a good APR?
We’ve arrived at the question at hand: What is a good APR for a credit card? The answer is partially subjective. Someone with a 27.9% APR now may see a 17.9% offer as a good APR. Meanwhile, someone with a 15.9% APR credit card may find the prospect of a 17.9% offer unappealing.
Subjective cases aside, we can find some objectivity. “Good” can mean better than average, so let’s start there.
The average credit card interest rate (APR) in the U.S. in 2021 was 16.45%, so anything below that could broadly be considered good. However, if you have a solidly above-average credit score, you might want to aim lower.
How to access a better APR
Are you starting to suspect that you might be facing an APR that’s higher than you deserve? It might be time to take action.
The route to a good APR will partly depend on the situation you’re in right now. Do you have a credit card already and want to secure a better rate, or are you looking to apply for your first credit card?
Either way, one of the tactics below may be able to help you land the best rate possible.
If you don’t yet have a credit card, the easiest way to secure a good APR is simply to shop around. You’re likely to find that some credit card companies quote higher APRs than others, so don’t just settle for the first thing you find.
There’s no need to file applications to do this. Many lenders will give you the option to find out if you’re likely to be approved via a soft inquiry, which will have no impact on your credit score.
Also, consider comparing banks with credit unions, which sometimes offer low-interest credit cards for those who don’t have excellent credit.
Work on your credit score
We’ve already established that creditworthiness is an important factor in determining your APR, so it makes sense that boosting it will help you land the best rate.
Pay close attention to the five components of creditworthiness outlined above. It’s especially a good idea to avoid missed or late payments and aim to keep your credit utilization rate low.
Also, look out for errors on your credit report that could be pulling your score down unnecessarily. If you find any, report them to the credit bureaus.
Negotiate your way to a good APR
Improving your credit score is a great first step to improving your APR, but if you already have a credit card, your issuer is unlikely to call you up and offer a better APR out of the kindness of their heart.
Fortunately, nearly everything in life is negotiable. While you agreed to an APR when you signed up for your credit card, it’s not written in stone. You can often call your credit card company and negotiate a lower rate, especially if your credit score recently improved, qualifying you for a lower interest rate.
However, some credit card companies offer the same APR to every cardholder, in which case they may refuse to negotiate.
To give it a go, call the customer service phone number on the back of your credit card and tell the representative you’d like to ask about getting a lower APR. The representative will let you know if you can negotiate.
Emphasize how long you’ve been a loyal customer, your stellar payment history and any competing credit card offers to which you’re considering transferring your balance.
Even if the company refuses to negotiate your APR, you can ask them if they can waive any past interest charges or annual fees. Some credit card companies will periodically waive these fees, so it’s worth a try.
Transfer to a good APR
If you can’t negotiate, you might be able to transfer to a better APR.
One option is a promotional APR. Credit cards want new customers and often offer promotional balance transfer rates to draw you in. In some cases, you can get an introductory APR of 0%, which lasts for a fixed period of time — e.g., 12 months.
While a balance transfer from a high-interest credit card to a 0% intro APR seems perfect on the surface, there are a few factors to think about.
First, consider the transfer fee. Credit cards generally charge a 3% to 4% transfer fee on the balance you transfer to the 0% promotional APR. So, if you transfer $1,000 to a card with a 4% balance transfer fee, you incur a $40 fee.
That $40 may seem steep, but considering a credit card with a 17.9% APR could cost you $179 in interest over a year, the transfer might be a better deal.
You should also consider what happens when the 0% APR promotional period ends. Will the credit card start charging interest after the promotional period expires? Or is the interest deferred during the promotional period — meaning if you end the period with a remaining balance, the deferred interest is charged on that unpaid amount?
For example, if you transferred $1,000 to a card that deferred its 20% interest for 12 months, and you left $500 unpaid after the promotion ended, you would get hit with a $100 interest charge. To take advantage of a deferred interest card, plan your monthly payments to ensure you pay off the transfer before the deferred interest hits your account.
Go get that good credit card APR
Anything below the current average is generally considered a good APR, but there’s no need to limit yourself to that. Evaluate your credit card APR and consider which strategies can help you lower your rate, or shop around to find the best deal possible.
Another thing to keep in mind is that interest compounds, which leads to increased credit card debt. If you need help paying off high-interest credit card debt, check out Tally†. The Tally app can combine your credit cards into one monthly payment and help you pay down your debt quickly with a lower-interest line of credit.
†To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. The APR (which is the same as your interest rate) will be between 7.90% and 29.99% per year and will be based on your credit history. The APR will vary with the market based on the Prime Rate. Annual fees range from $0 - $300.