Any affiliate links to products on this page are from partners who pay us compensation and are subject to terms and conditions of the offers mentioned (see our advertiser disclosure in our partner listings for more information). However, our opinions are our own. Find out how we rate credit cards and write an unbiased product review.
Information about the following products has been collected independently by Business Insider: Citi® / AAdvantage® Platinum Select® World Elite Mastercard®, Citi® Double Cash Card, Chase Freedom® Student Credit Card, Citi Simplicity® Card, and US Bank Visa® Platinum Card. Details about these products have not been verified or provided by their issuers.
Your card type and credit score will affect the interest rate you pay on your balance. The higher your credit score, the lower your interest rate, and rewards cards have the highest interest rates. Read our guide to the best no-interest credit cards.
Credit card interest rates overview
According to Federal Reserve data, the average annual interest rate on credit cards was a whopping 20.92% in the first quarter of 2023. But your credit card interest rate may be different.
Understanding APR
Credit cards come with a borrowing cost, or annual percentage rate (APR), which is the amount you pay for your credit. With a credit card, you only pay interest on the outstanding balance after the billing cycle has ended. If you pay off the card in full each month, you don't pay any interest.
But not paying off your balance in full each month can get costly: It's not uncommon for cards to have an APR of around 20%, meaning that with each month you have it on the card, your balance can snowball into a bigger and bigger pile.
Latest trends in credit card interest rates
Besides paying off your cards, there are several other factors that can affect your card interest rate, including your credit score and the type of card you have. We'll explain how these factors affect your interest rate.
Credit score based interest rate
Just like taking out a loan, your credit card interest rate depends heavily on your credit score, which is calculated based on your past credit activity and ranges from 300 to 850, based on a combination of past borrowing, repayment history, available credit, and credit accounts.
Because lenders use credit scores to evaluate your creditworthiness as a borrower and whether they will lend to you, the higher your credit score, the lower your credit card interest rate will generally be. People with high credit scores are also more likely to qualify for no-interest credit cards with 0% introductory APRs.
The higher your credit score, the lower your interest rate.
According to data from the 2021 CFPB Consumer Credit Card Market Report, the average total interest a consumer pays increases the lower their credit score.
The CFPB measures this in terms of the effective interest rate, which is calculated by dividing the total amount of interest charged per year by the total balance at the end of the cycle to create a measure of how much interest consumers actually paid at each credit level. Data from 2020 shows that consumers with the highest credit scores paid the lowest effective interest rates, and vice versa.
Interest rates by credit card type
Premium credit cards tend to have higher APRs.
The type of card you have will affect how much interest you pay if you carry a balance, and for the three main types of credit cards, higher interest rates come with bigger rewards, according to data from S&P Global.
Some of the most well-known brand rewards cards have high interest rates. Here are some popular rewards cards and their interest rates. Keep in mind that credit card companies can change interest rates, and only those with excellent credit scores qualify for the lowest interest rates.
Travel credit card interest rates
Travel credit cards can have higher interest rates than regular cards because they offer valuable rewards if used correctly. These credit cards are a good option for people who want to earn rewards, such as miles for booking award flights, but don't plan on carrying a balance on their cards.
Cashback card interest rates
Cashback cards offer the most flexible reward: cash. Typically, these cards earn you a percentage of your total purchases back, up to about 2%, which you can then put back onto your balance or cash out to put towards other purposes.
Cashback credit cards have interest rates that are a little lower than rewards credit cards. Here are the best cashback credit card interest rates on the market right now.
Student credit card interest rates
Created specifically for college students, these cards are perfect for young adults who haven't yet built up much credit, which can be secured by depositing cash up front.
Student credit cards have slightly more lenient terms and are a great way to build credit while in school, but they can have higher interest rates: For borrowers with the best credit scores, interest rates are around 18%, but interest rates can go as high as 29%.
First APR Card Interest Rate
The best balance transfer credit cards allow you to consolidate your credit card debt onto one card while making payments at 0% APR during a promotional period, sometimes for a year or more. These offers can save you a lot on interest, but you should weigh the pros and cons to see if a balance transfer is worth it for you.
Cards with an introductory 0% APR can also be used to finance larger purchases over a short period of time, and some cards offer an introductory 0% APR on both balance transfers and purchases.
However, these cards aren't interest-free forever. Interest rates will increase after the promotional period ends. No interest accrues on the balance during the promotional period. As long as you pay off the card in full by the end of the promotional period, you can use it as an alternative to a personal loan. After the promotional period ends, you'll be paying a fairly standard interest rate.
Here are some examples of how this works with some popular cards that offer a 0% introductory rate.
Remember: interest applies only to the outstanding balance
If you pay your credit card in full each month, it can be a valuable tool for earning airline miles and hotel points, receiving cash back, and building your credit history without paying interest.
If you don't pay your credit card bill in full each month, interest will be applied and the total amount of debt will increase. This can quickly get out of hand and negate any rewards you may be earning from the debt you've accumulated on your card.
Paying off your credit card in full means you don't have to worry about paying more for purchases than you need to, and it also allows you to earn rewards. Credit card interest rates may seem high, but if you pay in full each month and use your card responsibly, the interest rate is zero.
Controlling and lowering interest rates
Strategies for reducing your APR
Lowering your credit card interest rate is often as simple as calling your issuer and asking for a reduction. Credit card interest rates are negotiable, so if you've always made your payments on time and have a good credit score, there's a good chance you can get your interest rate reduced by simply asking.
Even if you can't lower your interest rate, there are ways to reduce the amount of interest you pay. The most reliable way is to pay off the loan in full each month if you can afford it.
Making several payments each month is another strategy for reducing interest costs. If you plan to pay off a certain amount of your credit card debt at the end of the month but can't pay it off in full, paying that amount in several installments during the month will reduce your average daily balance and the amount of interest you're charged.
You could also consider a balance transfer, or moving your debt from a high-interest account to a lower-interest account. Some balance transfer credit cards offer no interest for the first 12 to 21 months, meaning all payments go toward reducing the principal.
FAQ
The average varies, but typically ranges from 15% to 23%, depending on the type of card and the consumer's creditworthiness.
Your APR will be listed on your credit card agreement and monthly statement, or you can get this information directly from your credit card issuer.
Yes, it may be possible to negotiate a lower rate, especially if you have a history of on-time payments or if your credit score has improved since receiving the card.
No, interest rates vary widely depending on the card issuer, the type of credit card and the cardholder's credit score.
Pay off your balance in full each month, take advantage of a card that has an introductory 0% APR offer, or transfer your balance to a card with a lower interest rate.
Liz Knoeven
Personal Finance Reporter
Joseph Hostetler
Credit card reporter
Top Offers from our Partners
Source link