When you need to pick up food or gas in the car, you can whip your credit card without thinking twice (especially if you earn rewards). But if you have a month-to-month balance, there's one thing you shouldn't ignore: the interest rate.
How do banks set up the interest rates they charge?
We usually think of credit card interest rates for April, or annual percentage. This is the annual rate you pay to borrow money on credit. Most credit card companies use variable APRs, which means that the interest rate you are charged fluctuates with a reference rate such as the Prime rate (the rate charges each other). Your course is probably the Prime price plus a set percentage percentage. If the reference rate goes up, credit card rates usually also go up (and vice versa).
Credit card companies decide where to set APR for individual cards. It is not uncommon to find cards that have a series of APRs; For example, you might come across a card that has an APR range of 1
The initial course you start with can change over time. If you sign up for a new credit card with a campaign, you will eventually switch to the regular course. As previously mentioned, changes in the Prime price can affect your tax rate. If a payment is missing, a trigger fee may be APR. And according to the 2009 CARD Act, credit card companies can raise your interest for any reason when your account has been open for one year.
It's a good idea to take the time to learn about and understand your interest rate and how it works. The higher your interest rate, the more your purchases cost when you pay your balance over time.
Let's start with some details you may not already know about.
How different prices are translated into different costs
Your credit card probably has more than one interest rate. You cannot pay the same interest rate for each type of transaction.
Here are the most common types of APRs that credit cards can charge:
- Regular purchase APR: This is the rate you should pay for purchases when you have one balance between month and month.
- Common Balance Transfer APR: This course applies to balances you transfer to the card. The balance transfer APR can be the same as buy APR or another batch completely.
- PR or introduction APR: A campaign or introductory course is a special price that applies for a certain period. When the campaign period ends, the usual annual report applies. cards can offer promotional prices for purchases, balance transfers or both.
- Cash advance APR: Cash tax APR kicks in when you make a cash withdrawal from your credit card limit. There is no grace period on a cash advance. This means that interest income arises on the transaction date.
- Penalty APR: Credit card companies can charge a penalty when you pay late. The average penalty is about 30 percent. If you meet with a penalty APR, you can request the credit card company to review your account after six months and consider returning to the regular APR.
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What is the average credit card frequency?
Average credit card rates have risen steadily over the past year or so as a response to Federal Reserve migration rates several times. As of March 2019, the average APR on new credit card offers was 17.67 percent. It is a record high level.
That number applies to all credit cards across the board. When you break down the APR for specific card types, the numbers vary. How to compare average short-term interest rates for some of the most popular card types:
- Low-interest cards: 14.67 percent
- Cash card: 17.58 percent
- Balance transfer card: 16.90 percent
- Corporate credit card: 15.24 percent
- Air card : 17.50 percent
- Reward card: 17.55 percent
(Source: www.creditcards.com. The percentages are as of April 3, 2019)
Not surprisingly, the highest average card rates apply to cards designed for people with bad credit. The average APR for those cards is 25.33 percent.
A common brief vanilla card can provide the lowest return on purchases. The disadvantage is that these cards do not normally come with many watches and whistles. That means no money back, no weird travel costs – you get the picture.
You pay a higher APR to make money back, airline miles or travel points. Making credit card rewards can save you money, especially if you make most of your expenses on a credit card. Keep in mind that the interest you pay eats to the value of these rewards. For example, you could earn $ 300 a year in cash, for example, but if you pay $ 500 a year in interest, math doesn't work to your advantage.
] How to get the best card price for you
The best way to avoid interest expense on a credit card is to pay your bill in full every month, but it is not always realistic. The next best thing is to find a card that gives you the lowest possible price, based on your credit rating.
Working to improve your credit score is a good way to start. Generally, credit scores are based on five things:
- Payment history
- Credit usage
- Credit age
- New credit requests
The most effective thing you can do to raise your credit score is to pay your bills on time. Set due date reminders to reduce the risk of you having no payment or paying late. Step one step further and consider putting your bills on autopilot and paying them automatically from your bank account each month.
The other thing you can do is pay down your credit card balance. This can improve your credit usage (how much of your credit limits you use). If you can get this number below 30 percent it is a good start; 10 percent is even better.
You may be able to lower your APR all the way down to zero, at least temporarily. If you have a balance, consider transferring it to a card with a lower rate. Shop for a balance transfer offer that you have a good shot to qualify for, based on your credit profile. You can save money and improve your utilization ratio at the same time.
Finally, you can always try to reach out to your credit card company and request a lower rate. If your account has been open for a while you have always paid on time and you are not the maximum on the card, they may be willing to trim a point or two.
Your finances thank you for getting the best credit card rate
If credit cards are a common part of your financial routine, snagging a low APR can be huge for your money goals. The less you pay with credit card interest, the more money you need to save, invest and spend on things and experiences that you really value. Knowing where you stand with your short-term interest rate and taking measures to get the best possible price can benefit your financial health now and in the future.
Rebecca Lake is a financial journalist at Credit Sesame. She holds a bachelor's degree in political science from the University of South Carolina. She covers the crossing of public order and personal finances.
The views expressed in this article are the author's own. The Haven Life Insurance Agency offers this only as educational information. Haven Life does not support or offer the products, services and / or strategies discussed here.
Haven Term is a Term Life Insurance Policy (ICC17DTC) issued by Massachusetts Mutual Life Insurance Company (MassMutual), Springfield, MA 01111 and offered exclusively by the Haven Life Insurance Agency, LLC. The number and features of policies and riders may vary by state and may not be available in all states. In New York, Haven Term DTC-NY is 1017. Our license number in California is OK71922 and in Arkansas, 100139527.