How much a 1% change in APR affects credit card debt?

When you’re shopping for a credit card, the APR is probably one of the first things you look at. After all, that’s the rate you will be paying every time you swipe your card – so it’s important to get that number as low as possible. However, there are several different types of APRs and most credit card applications don’t include all of them. In this article, we’ll go over everything you need to know about credit card APRs so that next time you’re applying for a new card, you can make an informed decision.

What is an APR?

APR, or annual percentage rate, is the percentage you are charged for carrying a balance on your credit card. Credit card companies are required to disclose the APR and other terms associated with your card in the credit card contract. Even if you don’t read the contract, you can still get a general idea of the rates by looking at your credit card’s interest rate. The interest rate you are charged on your credit card is based on several factors, including your credit score, your income and credit history. Interest rates on credit cards are not set in stone, though. They are “floating” and can change at any time. The initial rate you are offered when you sign up for a credit card is not the same rate you will pay a year later. Credit card companies regularly adjust interest rates up and down based on how the economy is doing, how the Federal Reserve is managing interest rates and other factors.

Standard and penalty APRs

The APR is calculated based on the assumption that you will carry a balance on your card each month. If you pay off your balance in full, your APR is 0%. If you do not pay off your balance in full each month, though, you will have to pay a standard or penalty APR. The standard APR rate is the interest rate that applies to your card if you do not qualify for a special offer. The penalty APR rate, on the other hand, is applied to your account if you miss two payments in a row.

How to find the best APR for your credit card

When you’re shopping around for a new credit card, you want to get the best APR possible. However, like we mentioned above, most credit card offers only show you the standard APR. So, how do you find the best APR for your credit card? First, figure out what your credit score is. This will help you understand how APRs are calculated. Credit card companies use your credit score, income and credit history when calculating your APR. The lower your credit score, the higher your APR will be. Next, look at credit card offers on websites like CreditCards.com, NerdWallet, etc. These sites have APR calculators that will show you the APR of any card you are considering. This will give you a better idea of what APR you can expect to get.

0% APR credit cards

Credit cards with 0% introductory APR rates are very common these days. They offer people with subpar credit the opportunity to make their payments on time and build their credit. So, what’s the catch? Most credit cards with 0% introductory APR rates require you to pay off your balance in full before the introductory period ends. This means that if you carry a balance, 0% APR is not as good as it sounds. If you do not pay off your balance before the introductory APR period ends, you will be charged the standard APR rate. This is usually much higher than 0% APR.

Welcome APR change

Some credit card companies will offer you a special APR rate when you open an account. This is often called a welcome APR change. This is not a fixed rate, though, so it’s important to track your payments and make sure they are on track. If you miss a payment, the credit card company will likely change your APR to the standard rate. This could be good or bad. If your credit card company offers a 2% introductory APR rate but changes it to 18% once the welcome APR period ends, it’s probably not worth keeping that card. On the other hand, if they bump your regular APR down a few points but make it retroactive to the day you opened the account, it might be worth keeping that card.

Regular APR change

This is where most people get confused. When a credit card company changes your APR, they usually do it retroactively. This means that the new APR takes effect as of the day you opened your account. Keep in mind that if you miss a payment or pay your balance late, your APR will almost always be bumped up. The best thing you can do to protect yourself from an APR change is to make sure you are making all of your payments on time.

For example, if you have a $500 credit card balance to pay off, at 17% APR you'd be paying $585 and at 14% it would be $570.

Seems like a difference you can ignore? Think again when you do the math with larger numbers.

Conclusion

The APR is the interest rate you pay on your credit card. It is based on several factors, including your income and credit score. Credit card companies regularly change APR rates, so it’s important to track your payments. Most credit cards offer 0% introductory APR rates, but they often require you to pay off your balance in full before the period ends. Credit card companies change regular APRs retroactively, so the best way to protect yourself is to make sure you are making your payments on time. That’s all we have for you today, folks. We hope you enjoyed this article and learned something new. If you're looking into learning effective ways of saving, this article might help you!