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Ask a Credit Card Expert: Why Is my APR so High if I Have Good Credit? | Credit Cards

Key Takeaways

  • Your interest rate may have nothing to do with your credit score.
  • Rewards credit cards typically charge a higher APR than cards without rewards.
  • When you pay your entire statement balance by the due date, you won’t be charged interest on purchases.

The interest rate on your credit card determines how much you’ll pay if you carry a balance. Interest rates vary across different types of cards, but your credit score is a major factor in setting your credit card annual percentage rate. Like many Americans, you may wonder why your credit card interest rate is so high, even though you have good credit. Learn about APRs, why they matter and steps you can take to lower your rate.

What Is an APR and Why Does It Matter?

The APR is the interest rate your bank charges on your credit card balance. However, if you pay your credit card statement balance in full each month by the due date, you won’t pay any interest.

Most credit cards have a variable APR. This means that, as interest rates change, your credit card APR will also change. As the Federal Reserve raises rates, your APR increases; and when it lowers rates, your credit card interest rate will decrease.

A higher APR results in higher interest charges when carrying a balance. This increases the borrowing cost of using your credit card. Typically, your interest rate is determined by your credit score when applying for the card.

What Is a Good Credit Score?

Credit scores are made up of five different factors based on how you handle credit. Scores range from 300 to 850, with higher numbers equaling better credit. A credit score of 670 to 739 is considered good, 740 to 799 is very good, and 800 and above is exceptional.

Why Is my APR so High if I Have Good Credit?

There may be several reasons why you’re dealing with a high APR on your credit card even though you have good credit.

  • Your credit score has improved. Interest rates on credit cards are typically set based on your credit score when you apply. If your score has improved since opening your card, you may qualify for a better interest rate.
  • Rewards cards have higher APRs. Airline, hotel and cash back credit cards offer valuable rewards as a rebate on your purchases. Banks often fund credit card rewards from the annual fees and interest charges they earn from customers. If you have a rewards credit card, you may be charged a higher interest rate than a card that doesn’t offer rewards.
  • The Fed has raised interest rates. The Federal Reserve adjusts interest rates based on economic conditions, and many types of financing are affected directly and indirectly. Credit card interest rates are typically calculated by adding a margin to the federal funds rate. The Federal Reserve had been trying to get inflation under control by raising rates, and each of these rate hikes made it more expensive for consumers to carry debt.
  • A penalty APR is on your card. Even people with good credit scores make mistakes, and a bank may charge a penalty APR on your credit card without placing a negative mark on your credit report. Penalty APRs typically increase credit card interest rates significantly due to a late, returned or missed payment. Depending on the bank, the penalty APR may apply temporarily or for the life of the card – meaning it could remain even after you’ve made amends and your credit has improved.

What Can I Do to Lower my Credit Card APR?

Just because your credit card has a high interest rate, that doesn’t mean you’re stuck with it. Follow these four steps to get a lower rate and avoid paying so much interest.

  • Avoid carrying a balance. Credit cards only charge interest if you carry a balance from month to month. If you pay off your bill in full each month to avoid interest charges, you don’t need to worry about what APR your card charges.
  • Ask for a lower rate. Many banks are willing to offer a lower rate if you ask. Being a longtime customer who makes on-time payments every month can help with the negotiation.
  • Apply for a new credit card. Seek out credit cards with lower APRs than what you’re being charged.
  • Take advantage of an intro APR offer. Some credit cards offer an introductory 0% APR for new customers. Using these promotions can help you eliminate debt without paying interest charges.

Sarah Goldberg
Sarah Goldberg

Sarah is a seasoned financial market expert with a decade of experience. She's known for her analytical skills, attention to detail, and ability to communicate complex financial concepts. She holds a Bachelor's degree in Finance, is a licensed financial advisor, and enjoys reading and traveling in her free time.

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