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Whether you’re watching the news online or reading the back of your credit card statement, you might come across the term “prime rate.” Have questions about what the prime rate is and how it affects you as a consumer? We have answers.

Q: What is the prime rate?

A: The prime rate is an interest rate that most banks use to set the annual percentage rate (APR) on credit cards, which determines how much interest you’ll pay on purchases and other transactions made with your credit card. You can find the current prime rate in the print or online edition of The Wall Street Journal.

Q: Does the prime rate change?

A: It can. Depending on the Federal Reserve’s view of the U.S. economy, the Federal Reserve may adjust interest rates that will likely impact the prime rate. However, those shifts are usually small. If your credit card has a variable APR based on the prime rate, whenever the prime rate goes up, your APR may go up. If prime drops, your APR will likely follow.

Q: Where can I find my account’s APR?

A: Your current APR can be found on your monthly credit card statement. If you’re a Capital One customer, you can find your current APR—and determine if it’s based on the prime rate—by looking at the “Interest Charge Calculation” section of your mailed or online statement.

Q: So how is my variable APR calculated?

A: If you have a variable APR, it’s simply an index rate (usually the prime rate) plus a number (called a margin). At Capital One, if your variable APR is based on the prime rate, we calculate it by adding a margin to the prime rate published in The Wall Street Journal.

Q: How will I know if my account is affected by a prime rate change?

A: You can see if your APR is based on the prime rate by checking your monthly statement. For Capital One customers, the back of your statement will also show you when any rate changes to the prime rate may take effect on your account.

Q: Does a prime rate change affect my minimum payment?

A: Yes, it can. Your minimum payment includes interest charges, which are based on your APR. If your APR is affected by a change to the prime rate, your minimum payment may also change.

Q: What will my payment be if the prime rate goes up?

A: Most changes to the prime rate will have a pretty small impact on your monthly interest charges. For instance, if you have a balance of $500 and your APR goes up .25%, your monthly increase in interest charges would be only 10 cents. Even if you carry an average daily balance of $10,000, that same rate change would mean your monthly interest charges would increase just more than $2.

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Q: How can I reduce the amount of interest I pay?

A: Start by trying to pay more than your minimum payment when it’s due each month. Even a small amount more can help. But the best way to avoid interest payments completely? Pay your entire balance—on time, every month.

Whether you’re shopping for a new credit card or looking for ways to lower your interest on an existing card, understanding rates and how changes can impact you is a great start. At the end of the day, it can help you be a smarter consumer with better control of your credit.

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