What is a good APR for a credit card?
When opening a credit card account, one key term to know is the annual percentage rate, or APR.
The APR represents the credit card’s interest rate—the price you might pay to borrow money. And looking at APRs is one way to compare credit cards before applying.
Here’s what you need to know about identifying and qualifying for a credit card with a good APR.
Key takeaways
- APR, short for annual percentage rate, is the yearly interest rate you’ll be charged on a credit card if you carry a balance.
- The Federal Reserve regularly reports the national APR average, which was 20.09% as of February 2023.
- A credit card APR is determined by your creditworthiness and the prime rate.
- Credit cards typically have more than one type of APR. Balance transfers, cash advances, late payments and introductory offers may have different APRs from the normal purchase APR.
- Comparing different APRs and card rewards can help you find the right low-interest credit card for you, if that’s what you’re looking for.
What is the average APR on a credit card?
There’s no industry standard for what’s considered to be a good APR for a credit card. However, the Federal Reserve regularly reports the national average. As of February 2023—the Federal Reserve’s most recent available data—the national average APR was 20.09%.
Comparing a credit card’s APR to the national average could be part of determining what a good APR is for you. But a “good” APR can vary based on both the borrower and the lender. Because credit card APRs typically vary based on the borrower’s credit score and other financial information, a good APR for one person might not be a good APR for another. So ultimately, what you consider a good APR will depend on your financial situation and unique circumstances.
How is APR determined on a credit card?
Every credit card issuer sets its own credit card APRs. And issuers usually determine credit card APRs based on a few main factors:
The prime rate
Most credit cards have a variable interest rate. That means rates are tied to an index rate, such as the prime rate. The prime rate is closely tied to the federal funds rate—the rate banks charge each other for borrowing money.
When issuers set their own credit card APRs, they typically add a certain margin to the prime rate. So if the prime rate is 8% and the bank’s margin is 12%, the APR will be 20%.
Creditworthiness
Credit card issuers also typically assess creditworthiness—or how likely a potential borrower is to pay back a line of credit—when determining APR offers. This may include reviewing credit reports, credit scores and other financial information. Ideally, the better your credit, the lower your interest rates might be.
Type of transaction
Credit cards typically have more than one type of APR. Which APR you’re charged depends on how you use the card. Here are five common types of credit card APRs:
- Purchase APR: When you charge purchases to your credit card and carry the balance to the next billing cycle, your credit card issuer applies a purchase APR to the unpaid portion of your credit card balance.
- Balance transfer APR: The balance transfer APR applies to any credit card debt—or other debt—that you transfer to your credit card account. The balance transfer APR is usually charged from the date you make a transfer. And keep in mind that balance transfers may come with fees, too.
- Cash advance APR: Some credit card issuers allow you to withdraw cash from your credit card’s line of credit—called a cash advance. A credit card’s cash advance APR may be higher than the card’s purchase or balance transfer APRs. And interest generally begins to accrue immediately on cash advances. They may also come with fees. Plus, there are other transactions that might be considered cash advances even if actual cash never touches your hands. These include using your credit card to buy casino chips, purchase lottery tickets, exchange dollars for foreign currency, transfer money using digital apps, pay debt like a car loan and use third-party bill pay services.
- Penalty APR: Late credit card payments could lead to a penalty APR. That’s because your issuer may increase your APR if you’re more than 60 days late on your credit card payments. But the increase might not be permanent. You could get back your original purchase APR if you make on-time payments in each of the six consecutive months after receiving the penalty APR.
- Introductory APR: Some credit cards offer an introductory APR—a lower-than-usual APR that you get for a set period of time when you open an account. Introductory APR periods must last at least six months and can apply to a card’s purchase APR, balance transfer APR or both. But keep in mind that an introductory APR is a limited-time offer. When the introductory period is over, the standard APR will apply. And if you’re carrying a balance on the card when the introductory APR period ends, you’ll start to see the card’s standard rate applied to the balance. Plus, it’s possible to lose the introductory APR by doing things like making a late payment.
Comparing credit card APRs
There are plenty of ways to compare credit cards. Looking at APR can be a good place to start, because it offers a common reference point. For example, if the rewards for a travel credit card and a cash back card both appeal to you, comparing the APR on each card could help you decide which is worth applying for.
You may also want to look into the APRs for different types of transactions. And you can see if there are any low introductory APR offers available.
It’s also worth noting that most credit card APRs are variable. The cardholder agreement will state how a card’s APR may change over time. So make sure you read and fully understand the terms of the credit card before applying.
Capital One has a useful credit card comparison tool that helps you search by credit requirements, rewards and other factors. And with pre-approval from Capital One, you can also find out whether you’re pre-approved for a credit card before applying. It’s quick and won’t hurt your credit scores.
How to qualify for a good credit card APR
Remember: The better your credit, the lower your interest rates may be. And responsible financial behavior can help you get and keep good credit—and qualify for good APRs.
Here are a few tips from the Consumer Financial Protection Bureau (CFPB) that could help:
- Pay your bills on time. Your payment history is a major factor when it comes to your credit scores. Making on-time payments is one way to show lenders that you’re a responsible borrower. You could even consider setting reminders or using automatic payments to help you stay on top of your bills.
- Stay well below your credit limits. According to the CFPB, “Experts advise keeping your use of credit at no more than 30 percent of your total credit limit.” That’s because your credit utilization ratio—a measure of how much of your total available credit you’re using—can affect your credit. And a lower credit utilization ratio is typically better for your credit scores.
- Only apply for the credit you need. If you apply for multiple credit cards and loans over a short period of time, lenders may think your financial situation has changed for the worse, and that could hurt your credit.
Good credit card APRs in a nutshell
While it’s impossible to give a single concrete answer to what a good credit card APR is, comparing APRs—and other credit card benefits—can help you make the right decision for you.
Interested in a new credit card from Capital One? Compare credit cards today to look at options and narrow down your search. And when you’re ready to apply, consider seeing if you’re pre-approved for a Capital One credit card. It only takes a few minutes, and it won’t hurt your credit score.