What Is APR on a Credit Card? What's a Good APR?

Nearly every credit card will, unfortunately, come with an APR. Here is everything that you need to know about APRs and how to get a card with a low one.

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Adam Moelis
Jun 9, 2022
7 min read

Over the last 70 years, credit cards have slowly become an everyday part of life in the United States. In fact, they’re so common these days that a lot of people have more than one of them. The average American currently has just under four credit cards in their name.

Every credit card will basically function in the same way. You swipe it, the money is transferred, and you pay back the balance over time. However, there are a lot of details that separate the estimated 1.1 billion American credit cards currently in circulation.

One of the key differences in credit cards is something called the annual percentage rate (APR). In some cases, the APR for a credit card can reach as high as 79.9%. In other cases, you can find a credit card with an APR as low as 0%. It will largely depend on where you’re looking and how your credit score looks.

What Is Credit Card APR?

Annual percentage rate (APR) is the yearly interest rate that you’ll be paying on your credit card balance. The APR is set by the credit card issuer and represents the cost that you will incur for borrowing funds. Each credit card comes with several different APRs that will vary based on how you’re using your card.

These are the five most common types of credit card APRs:

  • Purchase APR. The most common type and the one that will affect you the most often. The purchase APR is applied whenever you make a new purchase using your card and carry the balance into the next billing cycle. 
  • Promotional APR. Credit card issuers often use promotional APRs to entice new customers to sign up with their company. These APRs are often 0% and can last between six and 24 months before expiring.
  • Balance transfer APR. A balance transfer is whenever you transfer the balance of an old credit card onto a new one. Shifting the balance from a card with a high APR to a low one can save you a lot of money in interest.
  • Cash advance APR. You can use your credit card to physically withdraw cash from an ATM. This process is known as a cash advance and often comes with a very high APR. 
  • Penalty APR. The terms and conditions of credit cards typically include a set amount of time before you must start making payments. If you fail to make a minimum payment in time, then you’ll be charged with a penalty APR that will be higher than your purchase APR.

How Does APR Work?

There are a few misconceptions about how credit cards work. The APR for a credit card is typically much higher than that of a traditional loan. For that reason, there are a lot of people that are hesitant to use their credit cards.

The reality is that APR doesn’t kick in immediately. If every purchase came with a 21% interest rate, then no one would ever use their credit card. In fact, you can frequently use a credit card and never pay a single cent in interest.

The vast majority of credit cards come with a grace period of a 30-day billing cycle. If you can pay off the entire balance, then you won’t owe any money in interest. If you don’t pay off the entire balance, that’s when the APR will kick in.

Here is how you can calculate the interest that you’ll be paying for your purchase:

Step One: Convert APR Into a Daily Rate

For most credit cards, the interest will start kicking in the day after the billing cycle grace period has ended. You’ll need to convert your APR from an annual rate into a daily one. 

You can do this by dividing your APR by the number of days in the year (365). Let’s say you have an APR of 21%. That means that you would divide 21 by 365 to get 0.057%. This number is your daily percentage rate.

Step Two: Multiply Your Balance by the Daily Rate

The next step is to multiply this number by the balance on your credit card. Let’s say you made a purchase of $800 and only paid off $300 of it within the grace period. So your credit card balance would be $500 when the APR kicks in. You would multiply that balance of $500 by your daily percentage rate of 0.057% (0.00057 in your calculator) and get 0.285.

In other words, you would be charged 28.5 cents for every day that your balance was $500. Anytime that you make a payment, you reduce the amount of interest being accrued. A $50 payment would bring your balance to $450. Since 450 times 0.00057 is 0.256, the interest charge on your new balance would be 25.6 cents.

What Are The Usual Ranges Of Credit Card APR?

Credit card companies will thoroughly review the credit report of anyone applying for one of their cards. They’ll need to conduct a “hard inquiry” into your credit and look for any potential red flags. Depending on your credit score, you could wind up with a dramatically different APR.

The reason for this is that credit cards are considered unsecured debt. Since you won’t be putting up anything as collateral, the credit card company is on the hook for any debt that you default on. A higher credit score would indicate that you’re less likely to default and leave the credit card company covering your debt.

Here is a rough estimate of the APR that you can get based on your credit score:

  • 750-850 (Excellent) usually has an APR of 15.99% or lower with an average of 13.1%.
  • 700-749 (Good) usually has an APR of 18.99% or lower with an average of 18.84%.
  • 640-699 (Fair) usually has an APR of 23.99% or lower with an average of 23.05%.
  • 300-639 (Bad) usually has an APR above 24% with an average of 28.56%.

How Can You Get a Good Credit Card APR?

The credit score is the most important factor that determines the APR on your credit card. However, it’s not the only factor involved. Depending on where you look, you can find credit cards that have 0% interest rates. An arrangement like that means you only pay back what you charge on your card and not a cent more.

Even if you take advantage of such a deal, you should still try to improve your credit score. There’s no downside to having a high credit score, and you’ll be able to get a low APR on any additional credit cards that you get.

Here are a few ways that you can increase your credit score:

  • Make all monthly payments on time. Payment history accounts for 35% of your credit score and is the single most important factor. It’s essential that you make sure every one of your monthly payments (loans, bills, etc.) is being paid on time. It might be a good idea to enroll in an automatic money transfer program to ensure your payment history remains perfect.
  • Don’t max out your current credit lines. The amount of money that you currently owe makes up 30% of your credit score and is just behind payment history in terms of importance. Every person has an available credit limit on their credit report. Try to use less than 30% of your available credit because using any more will hurt your score. Paying down any current balances or increasing your credit limit will help lower your percentage. 
  • Keep your old accounts open. The length of your credit history has an impact of 15% on your credit score. The average age of your current credit accounts, as well as the ages of your oldest and youngest accounts, will play a role. It can take a long time before your credit history is long enough to have a positive impact. So it’s very important for you to keep your oldest credit lines open as long as you can

Go for the Best Rate Possible

It’s almost impossible to build up your credit score without having a credit card. The problem is that having a low credit score will probably mean a higher APR on your credit card. Having a 25% APR on your credit card is a recipe for disaster.

Fortunately, there is an easy solution to this dilemma: use the Yotta Credit Card. There are no interest or fees with the Yotta Credit Card, and your payments will also be on time as the balance is taken out of your account. You’ll be able to build up credit with no interest, no risk of getting into debt, and no chance of missing a payment. It’s a win-win-win situation.

Speaking of winning, you’ll be getting an additional ticket for every $5 that you spend with your Yotta Credit Card. Each ticket that you have will contain seven numbers. A new number is drawn every night of the week. Depending on how many that you match, you could win a brand new Tesla Model 3 or a $10 million jackpot. There aren’t any credit cards that offer potential rewards like that.

Head over to Yotta today and learn more about the Yotta Credit Card. You can enjoy an APR of 0%, build up your credit with every swipe, and potentially win the $10 million sweepstakes. There’s nothing to lose but so very much to gain.

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