Is Your Credit Card APR Too High? What You Need to Know

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Unless you plan to pay off your credit card bill in full every month, the APR is one of the most important considerations when selecting a card. But what is a high APR for credit cards? Let’s take a look.

Key Points

  • The average credit card APR is about 20%
  • 28% APR is a high interest rate for a credit card — look for a better deal unless your credit score is below 580 (poor). In that case, work on increasing your credit score until you’re in the fair range (580-670) before looking for a new credit card.
  • The ideal credit card interest rate is 14% APR or lower
  • Credit card APRs are variable interest rates, meaning they can change from month to month — so even if you apply for a card with a 10% APR, that rate may increase
  • When the federal Prime Rate increases, so does your credit card APR

What Credit Card Companies Don’t Want You to Know

Ideally, credit card users would pay their bill in full each month, which makes the APR irrelevant because of the grace period offered. But credit card statistics show that won’t be the case for most Americans. On average, 54% of adults carry a balance on their card. It also isn’t good for credit card companies, which hauled in $176 billion in 2020, despite pandemic-related spending cutbacks.

Pro tip: The best credit card APR is obviously 0%, when you pay no interest at all on the purchases you make. This means that whatever price you originally paid for something is the same price you pay when your card’s billing cycle is up, and whatever you charge is basically a free short-term loan.

Any 0% APR offer will only ever be temporary, and only those with the best credit scores will qualify.

What is a Good Credit Card APR?

Depending on your credit score, an excellent APR would be less than 14% APR. Some local banks and credit unions even offer cards with APRs lower than 10% for customers with excellent credit. 

Those rates are tougher to find now than they were earlier this year, due to multiple interest rate hikes by the Federal Reserve. After six rate hikes in 2022, the average credit card APR for someone with good credit is around 19.4%. A borrower with a poor credit score will pay an average of about 26%.

Pro tip: The annual percentage rate you pay your credit card issuer can make a big difference in the total you pay. If you owe $1,000 and pay it off over 12 months, you’ll pay $108 in interest at the 19.4% APR. If you’re lucky enough to find a card at 10% APR, you’ll pay $55 in interest over the same period. And if you’re a bad credit borrower with with a 26% rate, you’ll pay more than $146 in interest.

Most borrowers won’t qualify for the lowest rates, and the interest adds up quickly when you factor that the average American has between $5,000 to $9,000 in credit card debt.

READ MORE: How many credit cards are too many?

Some Credit Cards are Better than Others

Not all cards are created equal. Rewards cards and cards with more benefits and perks usually have higher APRs, or a higher annual fee.

Credit union credit cards will usually have the lowest interest rates. Some credit union cards will offer rates at 10% APR or lower.

Secured credit cards will usually have higher APRs than unsecured cards.

And you may pay different APRs depending on the type of transaction. Purchases may have a different purchase APR than the rate charged for balance transfers and/or cash advances, even on the same card. Cash advances usually do not have a grace period, so interest will start to accrue immediately. And your APR could increase if you make a single late payment, so make sure to note your due dates or set up autopay. You’ll need to carefully read the card’s terms to make sure you understand what you’re paying.

READ MORE: Why Did My Credit Score Drop?

How is the Average Credit Card APR Determined?

In 2023, the average credit card APR was 21.47%, according to estimates from the Consumer Financial Protection Bureau (CFPB).

Interest rates, usually referred to as annual percentage rates (or APRs), depend on many factors, including the prime rate, a fluctuating interest rate based on the federal funds rate set by the Federal Reserve. When the Federal Reserve increases interest rates, the prime rate increases and you pay more in credit card interest. As of December 2022, the prime rate is 7.5%. The latest Fed rate hike means the cost of carrying a balance on your credit card will be increasing within the next month or two, because most credit cards have variable rates.

What Is the Prime Rate?

The total credit card interest you pay depends on the prime rate. Most commercial banks use this rate to determine the annual percentage rates they charge for credit cards. The prime rate is typically based on the current federal funds rate, which means it increases as the Federal Reserve raises interest rates.
The prime rate is an interest rate that most commercial banks use to set the annual percentage rate (APR) on credit cards, which determines how much interest you’ll pay on purchases and other transactions made with your credit card. The prime rate is typically based on the current federal funds rate.

How Is the Prime Rate Set?

The federal funds rate is the overnight rate that banks use to lend money to each other. As the Federal Reserve adjusts rates based on its views on the state of the U.S. economy, it impacts the prime rate and changes the average interest rate you pay.

Other Factors

Beyond the prime rate, these other factors determine what APR your credit card has:

  • Who is extending credit (For example, is it a credit card company, traditional financial institution, credit union or store)
  • The lender’s policies
  • The credit card’s benefits
  • Your employment status and income
  • Your credit score

READ MORE: What Credit Score Do You Start With?

Signs Your Credit Card Interest Rate is Too High

If you have a bad credit score, you’ll usually end up paying the higher end of the range, which can be as high as 36% APR. However, even though this is high, it’s still considerably lower than what you’d pay for a payday loan or title loan, which often reach 300% or more in some states.

Once your APR starts to reach the 22% to 28% range, it’s getting too high. Of course, depending on your credit score, this might be all you can qualify for to start.

Check your credit score. If your score has improved since you applied for the card, you may now be eligible for a lower rate. If you have a good to excellent score and your rate is still on the higher end, now is a good time to start looking for a card with lower rates.

Want a Lower APR? Here’s What to Do

  • Explore credit union credit cards because they tend to have lower rates
  • Call your credit card issuer and try to negotiate a lower rate
  • Your creditworthiness matters, so make sure you have the best possible credit score
  • Regularly review your credit reports to ensure there are no errors dragging down your score
  • Make all credit card payments on time
  • Keep your credit utilization ratio (the amount of credit you’re using) low
  • Don’t close credit card accounts. Instead, request a lower credit limit
  • Look for a bare-bones card
  • Apply for a new credit card with an introductory offer
  • If you need to make a large purchase, check to see if a retailer offers a “same as cash” option, then pay off the purchase during that introductory period. This basically makes your loan interest free

READ MORE: How to build credit

If You Regularly Carry a Balance

If you regularly carry a balance, it’s important to choose a card with the lowest overall rate possible. Even a small rate reduction can mean a large savings if you’re paying off your balance over a period of years. If you need help, set up a free consultation with a consumer credit counselor.

You could also consider applying for a personal loan, ideally one with a lower interest rate.

READ MORE: How to consolidate your credit card debt

If You Always Pay Your Card in Full

If you pay your balance in full each month and have excellent credit, look for a rewards credit card that best fits your needs, whether it’s cash back or travel perks. Paying in full basically eliminates your need to care about your credit card’s APR.

READ MORE: Which credit bureau, report or score is most accurate?

Other Credit Card Perks

Credit cards include a few advantages for cardholders, which can really be beneficial — provided that you pay your bills in full each month.

Over the holidays, social media was full of stories from people who made purchases online that arrived broken or were never shipped at all. Credit cards will protect you in these instances because you can file a chargeback with your credit card issuer.

Other advantages include:

  • Purchase protection
  • Discounts: American Express has Amex Offers, while Chase and Capital One offer discounts when you shop through their links.
  • Product warranty extensions
  • Cell phone insurance
  • More secure than cash
  • Cashback match
  • New user bonus: Some cards will offer bonuses ranging from $200 back after you charge $500 or up to 50,000 American Airlines AAdvantage miles (usually enough for one domestic round-trip flight) after you charge $2,500 in the first three months after opening the account

How Can I Find a Lower Interest Rate?

Look for a balance transfer credit card that offers a low introductory rate. Then maximize your monthly payments so you’re paying as much toward your balance as possible before the balance transfer APR expires.

Real World Example: The Difference You’ll Pay in Interest

If you owe $2,000, here’s what your monthly payment would be if you’re paying it off over 18 months, depending on your card’s interest rate.

  • 0% introductory period: $111 per month
  • 10% APR: $121 ($144 in interest)
  • 16% APR: $126 ($232 in interest)
  • 22% APR: $132 ($320 in interest) 
  • 30% APR: $140 ($439 in interest)

As you can see, just a few percentage points can go a long way toward increasing monthly expenses.

Credit Card Debt Statistics

One surprising figure is that the total U.S. credit card debt as of the first quarter of 2022 is $1.103 trillion. This is larger than the GDP of many of the world’s economies. At an individual level, the average credit card debt is between $5525 and $8701 per household.

Explore more U.S. credit card statistics here.

The Bottom Line

High APRs on credit cards can significantly bog down your financial life if you aren’t careful. If you often carry a balance on your cards, choosing one with a low APR should be one of your top considerations before making a selection. 

Beyond the prime rate dictated by the Federal Reserve, you can try to get a low APR by making sure you have a good credit score, applying for a card with an introductory offer, and exploring your options at credit unions.

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