Understanding credit card rates is important for anyone in the market for a new credit card. Essentially credit card rates are the interest charged by the credit card company in exchange for you carrying an outstanding balance on your card. If you fail to pay off your credit card at the end of each cycle, a pre-set amount of interest is charged.
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APR or annual percentage rate is the terminology used by the issuer for credit card rates. APR varies greatly on credit cards based on a variety of factors. While tied to the U.S. prime rate, credit card rates never drop below a certain level, because credit card issuers have a rate floor in place to protect their profits.
The Same Credit Card May have More Than One Credit Card Rate
Credit card issuers have come up with a way to offer the most competitive APR to only a select group of individuals. Those who have ideal credit are the only ones who actually qualify for the lowest APR on a given credit card. Other individuals may qualify for the card but with higher APR. In fact, many credit cards have three tiers of APR charges.
Before you shop around for a credit card, know your credit score. You may assume that you have excellent credit but there may be errors or some issues you had forgotten that are affecting your credit worthiness. Being aware of the type of risk you present, will help you greatly as you shop for a credit card.
You can get a free copy of your credit once a year from the major credit reporting bureaus: Equifax, Experian, and TransUnion.
You also need to be aware of what can happen to your credit card rate after you get the card. Issuers often have penalty credit card rates that they charge if you have failed to meet certain parts of the cardholder agreement. Typically, if you make a late payment or if you exceed the credit limit of your card, an even higher APR will be imposed on your credit card balances.
Importance of the Credit Card Rate When Choosing a Credit Card
The credit card rate is very important when it comes to choosing a credit card, especially if you typically carry a balance on your credit cards. Even if you only rarely carry a balance, high credit card interest rates can make it harder to pay off debts and manage your credit. In addition, it means that you are actually losing money on your transactions.
Therefore, when you are shopping for a new credit card, consider carefully the rate that is being offered. Watch out for credit cards that offer multiple rates. You may be lured by a rate that looks extremely advantageous, only to find out that you are not actually eligible for that rate and are stuck with a much higher one.
Introductory credit card rates are also another important consideration when choosing a credit card. A low or even 0% APR on purchases during an introductory period can be very helpful if you are considering major purchases. Even more helpful is a low or 0% APR on balance transfers, so you can transfer balances on other credit cards to your new one and pay them off before additional interest is charged. This is intelligent money management and a great way to get a handle on existing debt.
Important Factors to Consider When Choosing a Credit Card
While credit card interest rates are very important to carefully consider when you are looking for a new credit card, there are also other factors that are just as important. You should always look at any rewards programs that are offered by a credit card company. Because there are so many credit cards on the market today that offer the same interest rates, one of the distinguishing factors is what you can get from the issuer in the form of rewards.
Be sure to choose a rewards program that offers incentives that truly appeal to you, an easy to understand program, and rewards that are easy to accumulate and redeem.
You also need to look at the reputation of the company you are considering when looking for a new credit card. Check the issuer out based on what users say about their experience. You can get a good overview of how credit card companies are ranked by looking at the J.D. Power and Associates study on credit card satisfaction that is done annually. It tells you just how the major credit cards are performing on seven different factors.
Reading the fine print and understanding the rates associated with the credit card you are considering is a very important part of shopping around for a credit card. Make careful examination of these things a part of your comparison-shopping.
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