The annual percentage rate (APR) of your credit card has a big impact on how much it costs you to carry a credit card balance. In some cases — if you have a variable interest rate or you’re late making payments, for example — your APR can change, causing your credit card interest rate to increase or decrease.
Understanding when and how these changes might occur can help you choose the right credit card and potentially spend less on interest. Here’s a look at what can impact your credit card’s APR.
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Key Points
• The APR on a credit card is the interest rate paid on the money borrowed by the credit cardholder.
• Credit card issuers can raise the APR when introductory rates expire, the prime rate increases, and payments are 60 days late or more.
• Penalty APR applies when cardholders fall 60 or more days behind on minimum payments, resulting in higher interest rates on outstanding balances.
• Credit cards may experience lower APRs when the prime rate falls or the cardholder negotiates a lower rate, directly lowering interest costs for cardholders with outstanding balances.
• Negotiating lower APR with issuers may be more effective when cardholders maintain high credit scores, reduce debt, and correct credit report errors.
What Is Credit Card APR?
A credit card’s APR is the interest rate you’ll pay on the money you borrow, stated as an annual rate. Your credit card APR will tell you how much a credit card costs you in terms of interest on the balance you carry. However, it won’t tell you about other fees and other credit card charges you may incur.
Credit cards will typically have a separate APR for credit card purchase interest charges, balance transfers, and cash advances. The APR you receive when you open a credit card will depend on a benchmark interest rate as well as factors like your creditworthiness, as determined by your credit score.
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What Can Cause Your Credit Card’s APR to Increase?
There are a number of reasons that credit card APR can increase. Your credit card company can increase your APR on new transactions as long as they give you 45 days’ notice. The company is generally not allowed to increase your APR during the first year after your account is opened.
Further, there are only certain cases in which your credit card issuer can raise rates on existing balances, including when:
• An introductory rate expires
• You have a variable rate card (most credit cards have a variable rate) and the benchmark interest rate rises
• You’re 60 days late making your minimum payment
• You have completed or don’t comply with the terms of an agreement with your card issuer, which has renegotiated the terms of your agreement for a period of time
No matter how the increase occurs, it’s important to realize that your credit card payments increase when your interest rate increases.
Prime Rate Rises
Your credit card will have either a fixed or variable credit card interest rate. If you have a credit card with a variable rate, that rate is largely based on a benchmark interest rate. The benchmark that many credit card companies use is what’s known as the prime rate. And when the prime rate rises, your APR will typically rise, too.
The prime rate could rise due to a change in the federal funds rate, which is the Federal Reserve’s recommendation for what banks should be charging when they make overnight loans to help each other meet federal reserve requirements.
Late Payments
Your credit card interest rate may also increase if you’re 60 or more days behind on paying your credit card minimum. This is what’s known as a penalty APR. Not only may this rate apply to your overdue balance, it may also raise interest payments on future purchases.
End of Introductory APR Offer
Some cards offer 0% APR on purchases or balance transfers for an introductory period. During that time, you won’t pay any interest on balances that you carry from month to month. However, once the introductory period is over, your APR will jump to the regular purchase interest rate, which will apply to any remaining balance on your account.
High Credit Card Balance
If you carry a growing credit card balance from month to month, or you’ve hit your credit limit and are unable to make payments, your card company may decide to raise your APR on new transactions.
Failure to Meet the Terms of a Workout Agreement
If you had trouble paying off your credit card debt in the past, you may have renegotiated with the credit card issuer the terms of your agreement, which is known as a workout agreement. When you successfully complete it, your card company may return your APR to what it was prior to the arrangement, which may have temporarily reduced your interest rate. On the other hand, if you fail to comply with the agreement, your card company may also decide to raise rates.
Recent Cash Advance
As mentioned above, credit card companies often typically set different APRs for purchases, balance transfers, and cash advances. If you’ve recently taken out a cash advance, you may have triggered the cash advance APR. This APR might be higher than the APR offered to you for regular credit card charges.
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What Can Cause Your APR to Decrease?
There aren’t as many triggers that will send your credit card APR lower, but here’s a couple to be aware of.
Prime Rate Falls
Changes in the prime rate typically have an impact on your APR. If the prime rate falls, your APR may also go down if you have a variable rate (as most credit cards do).
Negotiating for a Lower Rate
If you’d rather not sit around waiting for the prime rate to go down (or if it’s on an upward trajectory), one of the best ways to lower your credit card APR is simply by asking. Negotiating for lower rates and fees is one of the important credit card rules to know. (You can also negotiate on other things, such as credit card spending limits.)
You can improve your odds in this negotiation by arming yourself with some key information. First, get familiar with your credit score and make sure that it’s as high as possible. You may be able to help build your score by paying down debts and making sure to correct any errors on your credit report.
Also make sure to highlight your history with the company. Credit cards want to hold on to long-standing customers with a good history of paying their bills on time.
If your credit card company rejects your first attempt at negotiation, don’t be afraid to ask again or to speak to a manager who may have more power to make decisions about your account.
The Takeaway
Your credit card APR can have a major impact on how much it will cost you to carry credit card debt. As you choose a credit card, it’s important to shop around for the card that offers a low interest rate.
Still, your APR may rise at some point — especially if the prime rate increases or a low introductory offer expires. However, that doesn’t mean you’re stuck with the new rate. You can always try to negotiate with your card company to see if they can lower your rate.
Looking for a new credit card? Consider credit card options that can make your money work for you. See if you're prequalified for a SoFi Credit Card.
FAQ
How can I lower my APR on my credit card?
You can try to lower the APR on your credit card by negotiating with your lender. To help increase your odds of success, make sure you have a history of paying your bills on time and a strong credit score. Remind the lender of that positive history when you speak with them.
How does the prime rate affect my credit card APR?
If you have a variable APR, as many credit cards do, when the prime rate rises, so too, typically, will your APR. When the prime rate falls, your APR usually falls as well.
Can the APR on a credit card change?
Yes, the APR on a credit card can change for a variety of reasons. These can include a shift in the prime rate, the expiration of a low introductory offer, or being 60 days late on paying your credit card minimum.
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