What is a good APR for a credit card?

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.

Here’s what you need to know about identifying and taking advantage of a good APR. 

Key takeaways

• APR, also known as 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 determines the national APR average.  
• A credit card APR is determined by your credit history and the prime rate.
• Comparing different APRs and card rewards can help you find the right low interest credit card for you.

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.

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.”

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 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 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 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.

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 rating, a good APR for one person might not be a good APR for another. 

To help you get a good rate, it may be a good idea to compare credit card APRs. Keep in mind that different types of credit cards may have different rates. So it can help to look at the same kind of credit cards when doing a rate comparison. For instance, instead of comparing a travel rewards card to a cash back card, try to compare travel rewards cards to other travel rewards cards.

When comparing rates, it would also be worth looking at the APRs for different types of transactions. For example, a card may have a different APR for purchases than it does for balance transfers. Evaluating and comparing the key differences in the rates can help you pick the best option for you.

It’s also worth keeping in mind that most credit card APRs are variable. Your cardholder agreement will state how a card’s APR could change over time.

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 total 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.

While it may be impossible to give a concrete answer to what a good credit card APR is, comparing APRs—and other credit card benefits, for that matter—can help you make the right decision for you. If you aren’t sure where to start, monitoring your credit can help you determine which credit cards you may qualify for.

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. It’s free for everyone—even if you don’t have a Capital One account.

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.

Kim Porter, contributing writer

Kim Porter is a freelance writer who has written about personal finance topics for AARP Magazine, Bankrate, Credit Karma, U.S. News & World Report, Reviewed and more. She co-wrote the e-book "Future Millionaires' Guidebook" and used advice from the book to pay off $145,000 in student loans. When she’s not writing, you can find her training for her next race, reading or planning her next big trip.

Read more from Kim Porter.