Credit cards offer users much more payment flexibility than cash or debit cards. Cardholders don’t need to have cash on hand to make a purchase. Instead, consumers can pay off purchases over time. Credit cards also offer valuable purchase protections.
But paying with credit cards involves restrictions and fees, particularly if you don’t pay your bill in full by the deadline. If you’re one of the 54% of Americans who carry a credit card balance, it’s essential to understand your APR and why it matters.
Our take: The current average credit card APR on accounts with balances is about 22.75%. If you’re paying more than that, there are some steps that you can take to get that high APR lowered.
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What’s a good credit card APR?
The best APRs on credit cards range from 12% to 17%. The current average on a low-interest credit card is about 15.7%.
According to the Federal Reserve’s latest data on APRs, the average is now around 22.75% for new card offers and 20% for existing accounts.
Pro tip: The best strategy for using a credit card is to pay your balance at the end of each billing cycle to avoid interest charges. But paying the bill in full each month is not always possible. The lower your APR, the less you’ll end up paying in interest if you do have to carry a balance.
What’s the average credit card APR?
According to Forbes, the current average credit card interest rate is just above 27%. Rates have been climbing consistently over the past year. This is because credit card APRs are typically tied to the prime rate.
Pro tip: The prime rate is based on the federal funds target rate, determined by the Federal Open Market Committee (FOMC). The prime rate, the target rate plus 3%, is part of the FOMC goal of maintaining economic growth and controlling inflation.
The prime rate has been increasing steadily, so variable APRs on credit cards have also increased.
What is a high credit card APR?
Though many states have laws capping interest rates, these laws typically don’t apply to credit cards. Currently, the highest credit card interest rate is about 36% (charged by the First Premier Bank Mastercard, Total Visa Card and Milestone Mastercard).
Lower APRs save you a lot of money
Qualifying for a good APR on your credit card is incredibly important for managing your debt, especially if you are in a situation where you need to routinely carry a balance.
The higher your rate, the more you essentially pay for your purchase if you can’t pay your bill in full that month.
If you’re paying an APR of 25% or higher, debt could accrue quickly, and you might have to seek debt consolidation or payment solutions.
Conversely, a low APR makes your payments more manageable and can help prevent debt from accumulating in the first place.
For example, let’s say two borrowers apply for the same credit card: One has excellent credit, while the other has poor credit. The borrower with excellent credit will likely receive instant approval and an interest rate of around 15%. Meanwhile, the applicant with bad credit may have to wait several days to find out whether they’re approved, and they will probably have to pay an interest rate of about 25%.
That 10% difference may not sound like much, but interest charges add up if you carry a balance on the card. If you have a $500 balance and commit to payments of $50 a month, the borrower with the 15% APR will make 11 payments and pay $31 in interest, while the borrower with the 25% APR will make 12 payments of $50 and pay a total of $55 in interest.
APR vs. interest rates
An annual percentage rate, or APR, is the amount of interest plus fees you’ll pay on a loan over a year.
Pro tip: With a credit card, these two amounts are essentially the same thing, meaning you can divide your APR by 12 to get a good idea of how much your interest rate is per month.
On other loans, however, these terms are not as interchangeable. With mortgages, for instance, some lenders will advertise their interest rates. In contrast, others will advertise APR, which includes other fees like origination fees and gives a better idea of the total cost.
Types of credit card APRs
One important thing to note – credit cards come with different APRs for different charges. The most common APRs to look out for are purchase APRs, balance-transfer APRs, cash-advance APRs, and penalty APRs. Additionally, some cards come with introductory APRs on purchases, balance transfers, or both.
- Purchase APR: Your purchase APR is the one you will need to know most often and is the interest you will pay if you carry a balance past the grace period on any purchases you’ve put on your account.
- Balance-transfer APR: Many credit cards allow you to consolidate debt by transferring a balance from another card to your new one. Typically, you’d do this to take advantage of an introductory offer.
- Cash-advance APR: Cash-advance APRs are typically higher than the APR on standard purchases, and interest on cash advances starts to accrue immediately. There is no grace period.
- Penalty APR: A penalty APR is a higher interest rate charged if you are not meeting your minimum monthly payments.
- Introductory APR: Some cards offer a 0% or reduced interest rate for the first several months of card ownership to attract new cardholders.
You can find your card’s rates for all of these categories in your user agreement or by searching for rates and fees on the card’s info page on the issuer’s website.
How to qualify for a good APR
The credit card APR you will qualify for is tied to your credit score. Not only do cards made for those with good to excellent scores offer better rates, but almost every credit card will advertise a range of possible APRs. Only the best applicants will get the lowest rates.
Pro tip: The best way to get a better interest rate is to boost your credit score. You can do this by making all your payments on time, keeping a low credit utilization ratio (below 30%) and only opening accounts you need.
You should also shop around when you are looking to apply for a card. Look closely at the rates and fees of cards you are considering and look for low APRs. Remember that cards with perks like rewards or cash back might not offer the most competitive interest rates, so you’ll need to weigh whether these benefits are more important to you than a lower rate.
READ MORE: How are credit scores calculated?
How credit card APRs are set
Credit card companies use an APR, or annual percentage rate, to calculate the interest you owe. Your card issuer determines this number, which typically varies based on the national average, federal prime rate, your credit score, the type of credit card you have and even whether that credit card has an annual fee.
APRs could be as low as 0% during a promotional period or as high as 36% on some cards. The current average APR is between 20% to 30%, and anything over 25% is considered high.
Pro tip: If you’ve noticed all of the recent news chatter about the Federal Reserve and interest rates and wondered why you should care, here’s why the Federal Reserve’s actions are important. The benchmark APR fluctuates based on the federal prime interest rate. The current federal prime rate is 8.5% and the federal funds rate is 5.25% to 5.5%.
Because credit card interest rates are variable, your credit card interest rate will fluctuate every time the Fed changes the prime rate.
Credit card debt was on the rise even before the Fed’s aggressive interest rate hikes. According to Experian, the overall consumer debt total rose by more than $1 trillion in 2022. The increase — 7% — was fueled by high inflation, increases in consumer demand and positive job reports, which kept consumers spending.
That said, the better your credit score and payment history, the more competitive your interest rates will be. A high APR for someone with excellent credit is not necessarily the same as a high rate for someone rebuilding their credit.
3 ways to lower your high APR
Even if you have a card with a high APR, all is not lost. Several strategies for lowering your high rate include improving your credit score.
1. Ask for a lower interest rate
It might seem too good to be true, but sometimes a credit card issuer will give you a lower APR if you ask. This is especially true if you are a loyal customer with a history of making on-time payments.
Contact your card issuer and be prepared to state your case. Draw on your positive account history, cite any increases in your credit score, and argue why you are a responsible cardholder who can be trusted with your lower rate.
2. Pay off monthly balances
You can also avoid your high APR by paying off your credit card balance in full every business cycle. If you never carry a balance, you won’t have to worry about accruing interest in the first place. High APRs cost cardholders the most when they only make minimum payments.
3. Improve your credit score
Finally, and most importantly, the best way to avoid a high credit card APR is to work on raising your credit score. Start by checking your score and pulling a copy of your credit report to see where you stand.
FICO credit scores, the most popular credit scoring model, categorize scores into five main buckets. VantageScore, the other primary scoring model, is slightly different. To get the best rates, shoot for a very good or exceptional score:
| FICO score range | VantageScore range | |
| Excellent credit | 800 and up | 781 and up |
| Very good credit | 740 to 799 | 661 to 780 |
| Good credit | 670 to 739 | 601 to 660 |
| Fair credit | 580 to 669 | 500 to 600 |
| Poor credit | 300 to 579 | 300 to 499 |
READ MORE: How are credit scores calculated
Once you know where you stand, you can boost your score by making all your payments on time, keeping your credit utilization low, and keeping a healthy credit mix. You can also sign up for services like Experian Boost, which helps you build credit by reporting monthly bill payments to credit bureaus.
READ MORE: How to improve your credit score
Other ways to tackle credit card debt
When credit card debt gets out of control, even a balance transfer credit card might not be the best option. These other options each offer pros and cons for the right user:
- Personal loans
- Home equity loans or lines of credit
- Debt Management Plans
- Debt consolidation
- Debt settlement
- Bankruptcy
READ MORE: Debt settlement vs. debt consolidation
The bottom line
Credit cards can come with interest rates upwards of 25%, making them an expensive way to pay off your debt over time. You’ll get the most value out of your cards if you pay off your balance in full every month, but if you can’t, a few cards on the market offer slightly better rates.
