What’s a good APR for a credit card?

Credit card APRs can vary dramatically, but what’s a good APR? We take a look.

A credit card can be a useful tool for managing your finances. But if you don’t pay off your balance in full each month, you’ll usually be charged interest.

The official interest rate used for borrowing on a credit card is the annual percentage rate (APR). The APR includes the headline rate of interest you’ll pay, plus any additional fees. It gives you an indication of how much your borrowing could cost you each year.

APRs will differ depending on the card and the provider and can help you to compare credit cards quickly and easily – the higher the APR is, the more it will cost you to borrow.

What is a good APR for a credit card?

Generally speaking, a “good” APR for a credit card is a low one. The lower the APR, the less it will cost you to borrow on your card.

However, the rate that you qualify for will depend on your credit score. If your credit score is poor, you are likely to be offered a much higher rate than someone with excellent credit. For this reason, a good APR for someone with fair or poor credit will differ to a good APR for someone with an excellent credit score. To get a better idea of your credit score before you apply for a credit card, you can use our free eligibility checker without causing any harm to your credit score.

The lowest APR you can get is 0%, but this rate will typically only last for a few months. After this, the interest rate can jump dramatically, so make sure you check what rate you could end up paying. Some credit cards offer rates as low as 8.9% or 9.9%.

Keep in mind, though, if you always pay off your balance in full each month, the APR won’t matter because you’ll never be charged interest.

How to evaluate credit card APRs

When comparing credit card APRs, you’ll want to look for the most competitive option. However, it’s important to keep in mind that when a card is advertised with a representative APR, the rate only has to be offered to at least 51% of successful applicants. This means that the remaining 49% might not be eligible for the advertised rate and will have to pay a higher APR.

For this reason, it’s a good idea to use an eligibility checker before you apply for a credit card. This will give you an indication of how likely you are to be accepted for a particular credit card, as well as what APR you might be offered.

Eligibility checkers run a “soft” search on your credit file which won’t leave a mark for other lenders to see. By comparison, a “hard” credit check will leave a mark on your credit file – too many searches in a short space of time can deter some providers from lending to you.

How to qualify for a good APR

To qualify for a good APR, you’ll usually need to have a good to excellent credit score, with a good history of repaying debt on time and in full.

If your credit history is poor, there are a number of steps you can take to improve it. For example:

  • Keep up with repayments. Always make your credit card, loan and mortgage repayments on time and in full each month. It’s worth setting up a monthly direct debit so that you remember to pay on time.
  • Stick within your credit limit. Similarly, make sure you don’t spend more than your credit limit allows.
  • Keep an eye on your credit utilisation. This is the portion of credit you’re using out of the credit limit available to you. So if you had an overall credit limit of £3,000 and you were using £1,500 of it, your credit utilisation would be 50%. Experts recommend keeping your credit utilisation rate below 30%. Paying down existing debt or keeping old credit card accounts open can help to lower your credit utilisation rate.
  • Don’t make too many applications at once. It’s best to space out credit applications by at least 3 months, preferably 6. If you keep applying for credit over a short period of time, lenders might think you’re desperate for credit and may be less willing to let you borrow.

What to expect from cards with high APRs

Many credit cards with high APRs come with a range of additional benefits. These could include cashback on your purchases or the opportunity to earn air miles or loyalty points. They might even offer perks such as airport lounge access and a concierge service.

However, if you are planning to choose a rewards credit card that charges a high APR, it’s important to make sure you can afford to clear your balance each month – otherwise the amount of interest you pay will far outweigh the benefits on offer. Some of these cards also charge a high annual fee so factor this in too.

Alternatively, some high APR credit cards are designed for those with poor credit. Known as credit builder credit cards, they can help those with bad credit or no credit history improve their credit score over time. Usually these cards have low credit limits which might increase after a few months. Provided you pay off your balance in full and on time each month, they can be a useful way to rebuild your credit score.

What to expect from cards with low APRs

Low APR credit cards don’t tend to offer additional perks and benefits such as cashback and air miles. Instead, they are usually geared towards those who want to pay off existing credit card debt more cheaply or those who want to spread the cost of an expensive purchase over several months, without paying huge amounts of interest.

Some credit cards will charge no interest at all for a number of months. If you’re transferring an existing balance to one of these cards, you will usually need to pay a transfer fee in the region of 1–3%. It’s also important to clear your debt within the 0% period to ensure you don’t start paying interest once the 0% deal expires.

Alternatively, many low APR balance transfer credit cards (that charge a small amount of interest) won’t charge a transfer fee for any balances you move over. You might prefer this type of card if you don’t want the pressure of paying off your debt within a certain timeframe or if you don’t qualify for a 0% credit card.

Bottom line

If you can afford to, it’s always best to pay off your credit card balance in full each month so that you never have to pay interest. However, if that’s not possible, make sure you look for a credit card that offers a good, or low APR, so that you’ll pay less in interest overall and clear your balance much quicker.

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