Credit cards can be convenient financial tools, but borrowing through a credit card can become expensive when balances are carried from one billing cycle to another. One of the most important numbers to understand before applying for a card is the annual percentage rate, commonly known as APR.
Understanding APR and other card costs can help consumers compare offers more effectively.
What Is Credit Card APR?
APR represents an annualized measure of the cost of borrowing on a credit card. The applicable rate can vary depending on the card, the issuer, the transaction type, and the cardholder’s circumstances.
A card may have different rates for purchases, cash advances, and balance transfers.
Why APR Matters
If you pay your credit card balance in full according to the card’s terms and applicable grace period, you may avoid interest on qualifying purchases.
However, carrying a balance can result in interest charges. A higher APR can therefore make long-term credit card borrowing considerably more expensive.
Compare More Than the Advertised Rate
A credit card’s APR is important, but it should not be the only factor you examine.
Look at annual fees, balance-transfer fees, foreign transaction fees, late-payment policies, cash-advance costs, and other charges.
A card with a low promotional rate may still become expensive after the introductory period ends.
Understand Introductory APR Offers
Some credit cards advertise a temporary introductory APR.
These offers can apply to purchases, balance transfers, or both, depending on the card’s terms.
Before accepting an introductory offer, determine when the promotional period ends and what APR may apply afterward.
Consider the Minimum Payment
Credit card statements generally provide a minimum amount that must be paid by the due date.
Although making the minimum payment may keep the account current under the applicable terms, paying only the minimum can result in a balance remaining for a long period.
Paying more than the minimum when possible can reduce the outstanding balance faster.
Watch Your Credit Utilization
Credit utilization refers to the amount of revolving credit being used relative to available credit limits.
For example, if a card has a $5,000 limit and the balance is $1,000, the utilization is 20%.
Managing balances responsibly can be helpful for overall credit management.
Check the Card’s Rewards Program
Rewards can be valuable, but they should not encourage unnecessary spending.
Compare cashback rates, points, annual fees, redemption rules, expiration policies, and spending requirements.
A rewards card may not be worthwhile if its fees exceed the value of the benefits you actually use.
Read the Cardholder Agreement
Before applying, review the card’s terms and conditions. Pay attention to APRs, fees, promotional periods, payment requirements, and other important conditions.
Final Thoughts
The right credit card depends on how you intend to use it. Compare APR, fees, rewards, promotional offers, and repayment requirements instead of choosing a card based solely on an attractive introductory offer.
Responsible borrowing and timely payments can help keep credit card costs under control.