Credit cards can be an extremely powerful financial tool when used correctly. They allow users to build credit, earn points, and open doors for vacations and rewards that would not be possible without them. However, if credit cards have a dark side, it’s their annual percentage rate—or APR. Unfortunately, if you’re like 25% of rewards credit cardholders,¹ you will probably carry a balance at some point.
APR is a visualization of the annual rate of interest that consumers are required to pay for unpaid portions of their monthly credit card bills. It is the price that credit card users pay in order to borrow money from credit card issuers, usually at a much higher rate than other forms of borrowing money, like an auto loan or personal loan.
Knowing your credit card’s APR and making sure you have the lowest APR is incredibly important. But 40% of Americans who carry a balance on their cards don’t know their credit card’s APR, according to a recent study by CNBC.²
While no credit card APR is necessarily “good” for the consumer, they do vary among cards and even users. With APR being affected by several factors, including credit card type, your credit score, and available promotions, it’s important to do your research and get a good rate.
Quick Facts and Stats
- The average APR for new credit card offers was 16.16% in 2021 and was relatively flat throughout the year. The highest average APR was 16.22% and the lowest was 16.05%.³
- The average APR for rewards cards is 13.23%.⁴
- A typical penalty APR is 29.99%.⁵
- If you are a borrower with a lower credit score, you haven’t benefited much from current historically-low interest rates. The average new card APR for subprime credit cards is now higher than it was before the pandemic — 25.8% in January 2022, compared to 25.37% in February 2020.³
- Borrowers with good to excellent credit have seen APRs either stay steady (excellent credit) or drop 2.22% (good credit) in January 2022 compared to January 2021.⁶
- Secured credit cards have seen the highest increase in APRs by card type, jumping up 1.12% in 1 year from January 2021 to January 2022. Business and store card APRs have also seen a significant average increase over the past year.⁶
- While APRs have steadily increased since 2014, the pandemic brought about lower interest rates in 2020. This is expected to change in 2022 as the Federal Reserve is predicted to raise rates multiple times.⁷
- Of the U.S. households that carry credit card debt, the average interest charges paid in 2021 were $1,029, down from $1,155 in 2020.⁸
- According to the Fed, the percentage of people in Q3 2021 who are 30+ days late on their credit card payment (and thus accruing interest) fell from 1.58% to 1.57% in the third quarter of 2021, making it the lowest number since tracking began back in 1991.⁹
Why Your Credit Card’s APR Matters
Even if you plan on paying off your credit card in full each month and never carrying a balance, life happens! Being aware of the details of your card’s APR is important so you can minimize your interest costs.
To start, your Purchase APR is the standard APR that applies when you make purchases. This purchase APR can be either fixed or variable:
- Fixed APR is locked in when you sign up for your credit card and won’t change except under very specific circumstances, such as making a late payment (triggering your penalty APR). Fixed APRs are rare.
- Variable APR is more common. This APR can change over time and is usually based on a benchmark rate (for example, the prime rate plus 3.5%). When the prime rate increases or decreases, your credit card’s APR will change as well.
Either way, interest payments can be small in the short term, but over the long run, they can add up to big fees and make it harder to pay down your card. For example:
If you have a $1,000 balance on your card that you pay over 6 months, you’ll spend $13 more in interest with a higher APR:
- $39 in interest if your card has an 18.49% APR (the median APR if you have an “excellent” credit score)
- $52 in interest if your card has a 24.74% APR (the median APR if you have a “fair” credit score)
If you have a higher balance and/or you take longer to pay off the balance, this adds up much quicker. The interest on a $10,000 balance that takes you 3 years to pay off will be $1,033 more with a higher APR:
- $2,871 in interest if your card has an 18.49% APR (the median APR if you have an “excellent” credit score)
- $3,904 in interest if your card has a 24.74% APR (the median APR if you have a “fair” credit score)
This shows that it’s always best to be aware of your credit card’s APR and try to get the lowest rate offered by your issuer.
Where Do I Find My Card’s APR?
So where do you find your credit card’s APR? You have a couple of options:
- Monthly Statement — There will be a section of the statement marked “Interest Charge Calculation” or a similarly worded section near the end of your credit card’s monthly statement.
- Credit Card Terms and Conditions — It will be located in the Schumer box within your card’s terms and conditions. Even if you didn’t keep your original paperwork, this can normally be found online by searching for your specific card.
Average APR in America
If you haven’t sought out or received a credit card offer in some time, you may have an antiquated understanding of what the average credit card APR should be. To find out whether you’re getting a good APR, we turn to the average APR in the U.S. Over time, credit card interest rates ebb and flow, so it’s important to have a pulse on what the average APR looks like today.
Below is the average APR in the U.S. over the past 5 years, according to the Federal Reserve:¹⁰
In 2016, America’s average APR was 12.35%. In 2020, the average APR in the U.S. rose to 14.71%. That is more than a 2% net increase over 5 years. Interestingly, the average APR in 2020 was slightly lower than in 2019, when it reached 15.05%. Yet, according to creditcards.com, the national average APR is back up to 16.16% as of October 13, 2021.
However, this doesn’t mean that you’re locked into a credit card interest rate of 16.16% if you apply for a card today. Every individual receives a unique APR based on several factors, including the type of card and their credit score. Let’s dive into some of these contributing factors, starting with the type of card you want.
Average APR by Credit Card Type
The type of credit card you are looking to qualify for affects the APR you are offered, with premium cards tending to have higher APRs. According to data that Business Insider collected from S&P Global, there are 3 major card types: classic, platinum, and rewards. Below are the average APRs for each:⁴
- Classic Cards: 11.94% APR
- Platinum Cards: 12.76% APR
- Rewards Cards: 13.23% APR
However, we can break this down even further. ValuePenguin analyzed terms and conditions for 200 U.S. credit cards and determined their average APRs. Here is its breakdown of average APR by card type:¹¹
Cash-back cards offer a sweet deal with an average APR of 17.26%. On the other end of the spectrum are secured cards, which require a deposit upfront that is used as collateral in case users default on their payments. With a high average APR of 22.39%, there’s no reason to choose a secured credit card unless bad credit leaves you no other options.
How does your credit card compare? If your APR is significantly higher than these averages, it might be a good time to give your card’s issuer a call to negotiate a lower APR.
Average APR by Credit Score
Speaking of bad credit, the most important metric to consider is your credit score. In fact, card issuers rely heavily on your credit report and credit score when evaluating your risk level and assigning an APR to your credit card offer accordingly. Building up a good credit score will help you secure an APR on the lower end of the range for the card you are considering.
Here is the average APR by credit score according to U.S. News & World Report:¹²
Credit score ranges as defined above are based on FICO’s credit score ranges:
- Excellent — 740 to 850
- Good — 670 to 739
- Fair — 580 to 669
- Bad/No Credit — 350 to 579
If you have bad credit, your interest rate will likely be between 20.15% and 22.85% on average. Attaining average credit will decrease that rate slightly from 21.85% to 26.51%. Interestingly, the U.S. News analysis shows that those with fair credit are actually worse off than those with bad credit. Of course, neither of those credit levels is optimal. You want excellent credit to be eligible for the best APRs — ranging from 14.68% to 22.09% on average.
The outlier here appears to be the bad/no credit field, but keep in mind that most cards offered for people that fall within these credit score ranges are secured cards and/or cards with much lower credit limits. Both of these reduce the risk to the issuer.
Average Credit Card Interest Rates by Issuer
Each issuer sets the APRs for its credit card products. The issuers all have a slightly different risk-based pricing policy that guides the range of interest rates they advertise and offer to customers.
For example, Discover offers cards that have a much lower APR than its competitors — both in the lowest APRs offered and in the median APR across all cards. Barclays Bank and Capital One have a median that is higher than competitors, exceeding 20%. These issuers also have cards with the highest APRs offered, right around 25%.
Bottom Line: Issuer average APRs also tend to factor in credit score, since some cards are only available to those with good-to-excellent credit.
Types of Credit Card Interest Rates
Another way to score a low APR is to look for cards that offer promotional rates. These come in various forms, such as 0% interest for an introductory time period or a zero-dollar balance transfer fee. While promotional rates can absolutely help you secure lower interest rates, debt.org cautions that they are liable to decrease your credit score due to increased risk to credit issuers.¹³
If you do go for a promotional rate, it’s always best to read the fine print. There will likely be conditions and exclusions to be aware of. You might owe interest on missed payments during the promotional period or immediately owe interest on any balance you carry when the promotional period ends.
What happens when the promotional rate ends? It’s important to know whether you are on a variable or fixed-rate plan and what the differences are between the 2.
Variable rates are just as the name implies, variable. Credit issuers can change them at any time without warning to the cardholder. The rate depends on a few variables.
The issuer will consider several variables, like the Federal Reserve Discount Rate, interest on U.S. Treasury Bills, or the prime rate as published by the Wall Street Journal. Then they will add a margin of percentage points (more for users with bad credit) to come up with an APR.
For example, the prime rate is 3.25% as of October 2021. According to debt.org, a card company might add 10 to 12 percentage points for those with good credit and 23 to 26 percentage points for bad credit. That means, credit depending, your variable APR would be between 13.25% and 29.25%.
Fixed rates, then, are the opposite. Consumers with fixed-rate plans are locked into their interest rates unless the card issuer gives a 45-day notice. The cardholder is then given the opportunity to opt-out of the plan or continue at the newer rate. There are, of course, certain situations where a fixed rate could change, including:
- Being more than 60 days late with a payment
- Completing a debt management program
- Ending a promotional fixed rate
Types of APR
There are several types of APR. Knowing how each of these factor into different usage scenarios with a credit card can help you manage your interest effectively. Here are the most important APR types to be aware of, according to the Bank of America:¹⁴
Introductory APR is synonymous with promotional APR, discussed above. Whether you are getting a balance transfer deal or a lower interest rate, it typically lasts for a specified amount of time before the purchase APR takes its place.
This is your standard APR that will be applied to all purchases you make with the card. It is typically the rate that is advertised when you apply or are offered a plan from a card issuer.
Fail to make the minimum payment on time and you’ll be charged what’s called a penalty APR, a rate that’s even higher than the default for your card. Per the CARD Act, credit card issuers are allowed to raise your APR if you are more than 60 days late on payments during the first year of your account. A typical penalty APR is 29.99%.⁵
Cash Advance APR
Card issuers often charge a different, higher, interest rate when you borrow cash using your credit card. There are no grace periods for this.
Hot Tip: Don’t confuse APR with APY.
How To Reduce Your APR
If you already have a credit card with an issuer and you’re hoping to get them to lower your existing APR, there are a few things you can do to renegotiate a lower rate. Reach out to your credit card issuer directly and ask if they’d be willing to negotiate a lower APR. Here’s some information to have on hand:
- Show a Positive Payment History — Point out your track record of making on-time payments. Lenders are more likely to give you a lower APR (in addition to other benefits, like a bigger credit limit) if you’re a trustworthy borrower.
- Show a Change in Credit Score — Maybe you started with good credit, but now have excellent credit. This is definitely a reason for an issuer to offer you a lower rate. Just be aware that to confirm your higher credit score, the issuer may need to run a credit check on you again!
- Be Aware of Competitor Offers — Know what the competition is offering and use it to your advantage. Let your credit card company know that you’re searching for the best rate and be armed with the correct information.
If you’re in the market for a new credit card, the best thing you can do is to make sure your credit score is as high as possible. In order to do this, be sure to:
- Monitor Your Credit Report — Check your credit reports regularly to make sure you’re accurately scored. You have the right to check your credit reports from each major credit bureau (Equifax, Experian, and TransUnion) for free through AnnualCreditReport.com.
- Keep Debt Balances Low —Issuers want to know that you’re not over-extending yourself. Lenders look at the amount of credit you’re using compared to how much credit you’ve been given (also known as your credit utilization). Typically, the lower, the better, but try to keep it below 30%.
- Show an Impressive Credit History — Lenders like to see that you have a long history with different types of credit, including revolving credit and installment loans. This means the average length of your credit history and the types of loans you’ve handled (which is known as your credit mix) are really important to lenders.
There is a lot that goes into deciding your personal credit card interest rate, from your own credit score to the type of APR applied to the type of credit card you want. It’s important to understand the nuances of credit card interest before jumping into the first offer that arrives in your mailbox. Otherwise, you could be in for a rude awakening when your introductory rate expires, and suddenly you owe 29.99% on that late payment.
If your card has a higher-than-expected interest rate, try to negotiate a lower rate with your issuer. It’s also important to be aware of other APRs in case you need a balance transfer, miss a payment, or take advantage of an introductory offer on your card.