What Is a Good APR for a Credit Card?

Learn how credit card APRs are determined, the different types of credit card APRs and how to qualify for good rates

When opening a credit card account, one of the key terms to know is the annual percentage rate, or APR. The APR represents the credit card’s interest rate—the price you pay to borrow money from a lender.

There’s no industry standard for what’s considered to be a good APR for a credit card. However, the Federal Reserve regularly determines the national average. And for February 2021, the average credit card interest rate was 14.75%. Read on to learn more about what determines your credit card APR, the different credit card interest rates you might pay and how to get a good APR.

How Credit Card APRs Are Determined

Every credit card issuer sets its own credit card APRs. And issuers usually determine credit card APRs based on two main factors:

  • The prime rate. Most lenders set their own interest rates based on the prime rate. The prime rate is an index that’s closely tied to the federal funds rate—the rate banks charge each other for borrowing money. When lenders set their own credit card APRs, they typically add a certain margin to the prime rate. So if the prime rate is 3% and the bank’s margin is 12%, for example, the APR will be 15%.
  • The cardholder’s financial situation. Generally, the better your credit, the lower your interest rates might be. As the Consumer Financial Protection Bureau (CFPB) explains, “The credit card company may decide which interest rate to charge you based on your application and your credit history.”

Types of Credit Card APRs

Credit cards typically have more than one type of APR. Which APR you’re charged depends on how you use the card. And understanding when these different APRs apply can help you pay less in interest.

Here are five types of APRs you might find with a credit card:

  • 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 balance. 
  • Balance transfer APR: The balance transfer APR applies to any debt 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 come with fees too. 
  • 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 can 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.

How to Qualify for a Good APR

Remember: The better your credit, the lower your interest rates might 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 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 a great 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 available credit you’re using—can affect your credit. And the lower your credit utilization ratio, the better it could be for your credit scores.
  • Apply only for the credit you need. If you apply for multiple credit cards and loans over a short period of time, lenders may incorrectly think your financial situation has changed for the worse. And that could hurt your credit.

Monitor Your Credit for Free With CreditWise From Capital One

Another tip to help you build or maintain your credit—and qualify for good credit card APRs? Regularly monitor your credit to keep track of your progress. 

CreditWise from Capital One can help. CreditWise is a free tool that allows you to access your TransUnion® credit report and VantageScore® 3.0 credit score—without hurting your score. And it’s free for everyone, not just Capital One customers. 

Checking your credit reports can also help you stay on top of your credit. Just visit AnnualCreditReport.com to learn how you can get free copies of your credit reports from each of the three major credit bureaus.

Learn more about Capital One’s response to COVID-19 and resources available to customers. For information about COVID-19, head over to the Centers for Disease Control and Prevention

Government and private relief efforts vary by location and may have changed since this article was published. Consult a financial adviser or the relevant government agencies and private lenders for the most current information.

We hope you found this helpful. Our content is not intended to provide legal, investment or financial advice or to indicate that a particular Capital One product or service is available or right for you. For specific advice about your unique circumstances, consider talking with a qualified professional.

Your CreditWise score is calculated using the TransUnion® VantageScore® 3.0 model, which is one of many credit scoring models. It may not be the same model your lender uses, but it can be one accurate measure of your credit health. The availability of the CreditWise tool depends on our ability to obtain your credit history from TransUnion. Some monitoring and alerts may not be available to you if the information you enter at enrollment does not match the information in your credit file at (or you do not have a file at) one or more consumer reporting agencies.

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