Interest Rates By Credit Score
Like getting a loan, the interest rate attached to your credit card largely depends on your credit score. evaluate your past credit activity on a scale of 300 to 850 based on past borrowing, repayment history, available credit, and your mix of credit accounts.
Lenders use them to evaluate how trustworthy you are as a borrower, and whether they should lend to you, so generally the higher your credit score, the lower your credit card’s interest rate. Those with higher credit scores will also be more likely to qualify for cards with 0% introductory interest rates.
Why Pay Your Balance In Full
As an investor, you would be thrilled to get a yearly return of 17% to 20% on a stock portfolio, right? In fact, if you were able to sustain that kind of return over the long term, you should probably be running your own hedge fund.
Paying off a credit card balance is much like getting a guaranteed rate of return on your investment. If your credit card charges 20% interest per year and you pay off the balance, you are guaranteed to save yourself 20%, which, in a way, is the equivalent of making a 20% return.
So, when you have some cash to spare, it is almost always better to use it to reduce your credit card debt than to invest it. If you can pay off your balance and stop paying credit card interest altogether, you’ll find you have more money to invest in the future.
One interim strategy to consider, if you’re eligible, is transferring your current credit card balances to a balance transfer credit card with a lower interest rate. Many of these cards have promotional periods of six to 18 months over which they charge 0% interest on your balance, which can stop the clock on further interest charges and allow you to pay your balance down faster. Just watch out for any balance transfer fees, which can add 3% to 5% to your existing balance.
And, whatever you do, remember to keep paying!
Greater Chance Of Getting A Lower
Owning your own home with a low mortgage rate is one of the top benefits to having good credit. This is a long term loan and the lower your interest, the more money you save in the long run. Your good credit could have lenders competing for your business so you have the luxury of shopping around for the best offer. If you dont have good credit right now, you should work on improving it before trying to get a mortgage or youll be stuck paying high interest for years.
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Average Apr By Credit Card Rewards
Rewards credit cards offer higher interest rates versus balance transfer cards or low APR cards. Higher rates are due to the value of the points or miles on offer. Because of the larger APRs, these cards are poor choices for carrying a balance. Without a 0% rate intro offer on purchases or balances, applicants should be wary about carrying a balance. Instead, pay the full statement balance each month and avoid interest building up.
On The Topic Of Rewards
If you canât regularly pay off your credit card in full, thereâs really no point in chasing points or cash back on a rewards credit card. Thatâs because most rewards credit cards have an Annual Percentage Rate of 19.99%, and the interest youâd rack up would devalue any rewards you earn.
Simply put: A rewards credit card is only worth it if you pay off your statement in full each and every month.
While virtually all low interest credit cards donât offer rewards, the fact they charge a fraction of the interest of rewards cards will help you come out ahead financially when you do carry a balance.
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Interest Rates For Travel Credit Cards
Airline and travel credit cards can have higher interest rates than the typical card because they offer valuable rewards if used correctly. These credit cards are good options for anyone who wants to earn perks like miles to book award flights, but doesn’t plan to keep a balance on their card.
|14.49% – 24.49% variable APR based on your creditworthiness|
Deserve® EDU Mastercard for Students
Refinance Your Private Student Loans
While borrowers with private loans don’t qualify for the Biden administration’s pause on payments and interest for federal student loans, they do have the option of refinancing their loan at a fixed rate now, before interest rates rise.
If you have a private loan and are considering refinancing, you “should look into pulling the trigger sooner rather than later to try and take advantage of the current rates,” Betsy Mayotte, president of The Institute of Student Loan Advisors, said in a previous interview with CNBC.
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How To Avoid Or Reduce Credit Card Interest Charges
If you want to avoid paying credit card interest charges, or minimize the amount of interest youll pay in a billing cycle, here are a couple of things you can do.
- Pay your credit card bill in full. Credit card companies generally give you at least a 21-day grace period between the purchase date and the payment due date. If you pay off your balance in full and dont have any cash advances outstanding, you wont be charged interest on new purchases made during this interval.
- Pay a little more than the minimum. If you cant pay off your full balance, consider paying off as much as you can to avoid late fees and reduce the overall balance thats subject to interest. The minimum payment is typically up to 3% of the outstanding balance. Anything you pay over this minimum will further reduce your interest charges.
How To Get The Best Credit Card Interest Rates
The best way to get the lowest credit card APR is to maintain a good credit history.
When you have bad credit, its not uncommon to find APRs above 20%. With fair credit, you might see a rate in the upper-teens. Finally, with excellent credit, you might be able to get an APR in the low teens. It can make a difference in what you pay in interest charges each month if you carry a balance.
When you have a good credit score, you can further lower your rate by looking new cards with a low introductory APR. When you have good credit, you have a better chance at finding low-cost credit card offers with good rewards such as high cash back.
Another strategy is to actually call your credit card issuer and ask for a lower rate. If youre a good customer with good credit, you might be able to convince them to knock a little off your APR, saving you money if you carry a balance.
If youre hoping to get a better deal, take steps to improve your credit by making on-time payments and reducing your debt. In fact, with interest rates on the rise, its probably a good idea to pay down your debt as quickly as possible. As the Fed continues to hike rates and as the LIBOR and prime rate rise in tandem debt will become more expensive. Accelerate your debt paydown plan to limit your exposure to higher interest costs.
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Average Credit Card Interest Rates
Advertiser Disclosure: ValuePenguin is an advertising-supported comparison service which receives compensation from some of the financial providers whose offers appear on our site. This compensation from our advertising partners may impact how and where products appear on our site . To provide more complete comparisons, the site features products from our partners as well as institutions which are not advertising partners. While we make an effort to include the best deals available to the general public, we make no warranty that such information represents all available products.
Editorial Note: The content of this article is based on the authors opinions and recommendations alone. It may not have been reviewed, approved or otherwise endorsed by the credit card issuer. This site may be compensated through a credit card issuer partnership.
We examined about 200 credit cards from more than 50 issuers to get a sense of average credit card interest rates, or average credit card APRs, among card types. You can use this as a guide to see how your existing or potential APRs compare. If you’re carrying a credit card balance, consider our data to help figure out how you might lower your interest payments.
How To Reduce Interest Rate Through Balance Transfers
Some credit cards offer a low rate on balance transfer for new accounts. Let us say a person has $5,000 in credit card debt and have 19.99% interest. Opening a new credit card that offers low introductory rate for balance transfers can be an option to lower interest rate.
To take advantage, balance transfers can be done by contacting your new credit card through e-mail or phone. The $5,000 balance in a credit card can be transferred to a new credit card. Instead of paying 20% rates, you can potentially pay around 2% for the first 3-6 months.
However, not all credit cards offer introductory rate for new clients.
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Repaying Credit Card Debt: Two Interest Scenarios
Lets say John and Jane both have $2,000 balances on their credit cards, which require a minimum monthly payment of 3%, or $10, whichever is higher. Both are strapped for cash, but Jane manages to pay an extra $10 on top of her minimum monthly payment. John pays only the minimum.
Each month John and Jane are charged interest on their cards outstanding balances at an APR of 20%. When John and Jane make payments, part of their payment goes to paying interest and part toward principal .
Here is a breakdown of the numbers for the first month of Johns credit card debt.
- Principal: $2,000
- Payment: $60
- Interest: /12 months = $33.33
- Principal Repayment: $60 – $33.33 = $26.67
- Remaining Balance: $1,973.33
These calculations are carried out every month until the credit card debt is paid off.
If John continues paying only the minimum, he will spend a total of $4,241 over 15 years to pay off his $2,000 in credit card debt. The interest alone will have cost him $2,241.
Because Jane is contributing an extra $10 a month, she’ll pay a total of $3,276 over seven and a half years to cover her original $2,000 in credit card debt. Her interest charges will total $1,276.
The extra $10 a month saves Jane almost $1,000, compared with John, and cuts her repayment period by more than seven years.
The lesson here is that every little bit counts. Paying twice your minimum or more can drastically cut down the time it takes to pay off the balance, which leads to lower interest charges in total.
Why Rates On New Card Offers Are All
Most U.S. credit cards are tied to the U.S. prime rate, which is directly influenced by the Federal Reserves benchmark interest rate, the federal funds rate. When the federal funds rate changes, the prime rate typically changes by the same amount.
Lenders are free to set APRs on brand-new cards as they wish and technically arent required to change the APRs when a cards base rate changes. Historically, most lenders do revise the APRs they advertise when the cards base rate changes.
Thats what happened in the spring of 2020. After the Federal Reserve slashed rates by a point-and-a-half in March 2020 in response to economic softening from the coronavirus pandemic, nearly all of the issuers tracked weekly by CreditCards.com with the notable exception of Capital One lowered new card APRs as well. That, in turn, caused the national average card APR to plummet to its lowest point since 2017.
Since then, most new cards included in the weekly rate report have continued to advertise the same APRs they had in the spring of 2020. As a result, the national average card APR has hardly budged for more than a year, remaining within a rounding distance of 16% since April 2020.
But if the Federal Reserve does increase its benchmark interest rate next year, as currently projected, then most credit card offers are likely to follow suit. Current credit cardholders will also see their rates climb, causing their debt to become much more costly to carry.
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What If I Feel Like I Can Never Get Out Of Debt
Talk to a nonprofit financial counselor: Look at your credit card statement for information on how to contact a credit counseling service. Some statements offer a number that will give you contact information for various services.
Farmington Hills, Michigan-based GreenPath Financial Wellness, a nonprofit counselor, gives details on its services at www.greenpath.org. Or you can call 800-550-1961 Monday through Friday from 9 a.m. to 5 p.m. EST. The offices are currently closed for in-person visits.
The first rate hike by the Fed is expected to be small. But borrowers need to take into account that more rate hikes are likely ahead and the costs of borrowing will be going up.
Interest Rates And Minimum Payments
Like with any credit card, youâre required to make at least the minimum payment on a low interest credit card on time every month. Minimum payments are usually $10 or 3% of your balance owing and must be paid every 30 days by the date shown on your credit card statement. If you donât, you could temporarily lose the single biggest advantage offered by low interest cards â their low rates.
For instance, if you miss two minimum payments on your credit card within a one-year time frame, your annual interest rate could skyrocket by anywhere from 5 to 11 percentage points. Worse yet, you could get stuck with this higher rate for anywhere from 6 to 12 months, during which you must make minimum payments each and every month. Along with a hike in your interest rate, your credit score will get dinged and you could get hit with an additional late fee.
We canât stress enough, you should always make your minimum payments on time. If youâre facing new financial pressures due to COVID-19 and canât make at least your monthly minimum payments, you may want to consider not pursuing a new card and instead check with your bank if you could defer payments on your current credit card.
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Average Penalty Aprs On Credit Cards
The penalty rate, also called the default rate, is the APR you might be charged going forward if you fail to make on-time payments. This penalty rate is often significantly higher than the APR initially offered on your credit card.
Companies via the CARD Act are allowed to raise APRs only after youre 60 days late on your payments during the first year of your account. Depending on your credit card company, a number of other factors may cause you to incur the penalty rates as well, including exceeding your credit limit or defaulting on another account with the same issuer. However, issuers can increase your rate for any reason if your account is older than a year.
In our survey of credit cards, the penalty APR was generally dependent upon the card issuer. There is no federal limit on maximum allowable APRs.
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How Does Knowing The Average Apr Of A Credit Card Help You
Okay, so I can check out all the latest interest rate calculations here so what?
Well, keeping up-to-date on the latest APR trends can help you when shopping for your next credit card. Knowing what the average interest rates are on different card types can let you better gauge if the offer your bank gives you is fair, what other applicants with a similar credit profile to yours are getting, and if its time to ditch your current issuer for an exciting new offer elsewhere!
Refinance Your Home Loans
You could find mortgages with around 3% interest for most of 2021, but the Mortgage Bankers Association is predicting that rates will rise to 4% this year, which could make monthly payments on mortgages more expensive.
For a 30-year mortgage on a $300,000 home, the difference between 3% and 4% would be an additional $147 per month. Considering that the average rate for a 30-year fixed-rate mortgage has climbed to 3.68% this week, up 16 basis points from one week ago, you might want to commit to a lower rate now, before they go even higher.If you have an adjustable- or variable-rate mortgage that’s already testing the limits of your monthly budget, you might want to refinance to lock in a fixed-rate mortgage to mitigate the uncertainty of rising rates. But make sure you research the pros and cons of refinancing a mortgage before you decide.
Similarly, a home equity line of credit, or HELOC, is closely linked to the Fed’s benchmark rate, so you might want to shop around and convert from a variable rate to a fixed-rate loan if you have one.
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Average Credit Card Interest Rates From 1995 2020
The average credit card rate in the U.S. in the third quarter of 2020 was 14.58%, according to data collected by the Federal Reserve. The third quarter is the three-month period of July, August, and September.
That 14.58% average includes cards that were charged interest and cards that werent. The average interest rate for credit cards that were assessed interest was even higher: 16.43%.
The difference of 1.85% between those two averages matters. To see why, take a look at this chart, which shows how much interest youd pay to wipe out a $10,000 balance in 12 months at each of those average rates.
With the same balance and payoff period, the higher interest charge adds $9 to the monthly payment and about $86 to the total interest expense. Thats $86 you could have used to reduce other debt or pay for other needs and wants. If you were to raise the balance or extend the payoff period in that example, the amount you would pay in interest also increases.
The next peak, 14.67%, came one year later in the first quarter of 2001. Two years after that in the first quarter to 2003, the average dropped to 11.96%, the lowest level ever in the Feds historical data set, which dates back to the fourth quarter of 1994.
Rates for cards that were charged interest then climbed to a record-setting high of 17.14% in the second quarter of 2019. Rates eased slightly after that, dropping one year later to 15.78%, a level that would have seemed high 20 years earlier.