When it comes to choosing a credit card, one of the biggest factors many people consider is the interest rate. If the inherent mathiness of that phrase makes your head spin, don’t worry — understanding it is easier than you might think. The interest rate is a very important part of a credit agreement — especially for anyone who anticipates carrying a balance on their card (that is, not paying off the full amount owed every billing cycle).

But how do you know if your card’s interest rate is good? The thing to remember is that a “good” interest rate can vary from person to person, depending on how you intend to use the card. Let’s break the concept down into smaller parts and start by defining interest rates (and their often-referenced cousin, APR) and digging into the interest rates typically offered on credit cards.

What’s the Difference Between APR and Interest Rate?

When applying for credit cards, you’ll often see advertisements about APR, or the annual percentage rate. In general, APR and interest rates are different things with distinct definitions. While the interest rate describes the cost of borrowing money (the percentage of the amount borrowed that the borrower will be responsible for repaying, in addition to the principle), the APR is a broader measurement, which represents the “real” annual cost of borrowing money.

On installment loans, like car loans and mortgages, this distinction is important because the APR includes not just interest, but also fees and other charges as well that can significantly impact the total amount the consumer will be required to pay back on a loan. Confused? It’s okay. It’s a complicated topic. Here’s the good news though: When it comes to credit cards, the interest rate and APR are the same, thanks to the federal Truth in Lending Act (the law that covers the terms and costs of credit for credit cards), which requires your bank or credit card issuer to state their interest rates as APRs. So, when it comes to credit cards specifically, know that APR and interest rate are exactly the same thing (and remember that when it comes to other types of loans, they often are not the same).

How Is APR Calculated?

Your APR is the amount of interest you’ll be charged on any balance you carry on your card. Usually, credit cards will offer a variable APR that’s based on the the index, which is often, the prime rate. The prime rate is determined, in part, by the U.S. federal government (individual states do not have their own prime rate). The prime rate as of June 2018 is 5 percent. Head spinning? The important takeaway is that when the prime rate rises, so do variable interest rates. Also, the lender charges you a margin, which is the rate a lender charges above the prime rate, and when combined with the prime rate, equals your APR.

What Is the Average Interest Rate (APR) on a Credit Card?

As of the first quarter of 2018, the average interest rate across all accounts was 13.64 percent, according to the Federal Reserve. On interest-bearing accounts, the average is 15.32 percent. The first number reflects all credit card accounts, including those issued by banks, credit card issuers and stores. The second number is specific to accounts that have accrued interest. Some retail credit cards and balance transfer credit cards fall into this category.

What About Introductory Interest Rates?

If you’re thinking, “That’s crazy — I get letters all the time with 0 percent APR in bold letters,” you’re not alone. Often, credit card issuers will offer a lower introductory interest rate to entice new customers to sign up. Some issuers may offer 0 percent interest for 9 to 12 months, for example, after which a standard, variable APR will kick in. It’s important to read your credit card agreement in full so you know when the introductory interest rate period ends and what the interest will be once it expires.

What Makes a “Good” Interest Rate?

In the end, a good interest rate depends on how you plan to use your card. If you intend to pay off the balance in full every month, then the interest rate might not be the most important factor in your decision. In that case, you might be interested in cards that have more rewards structures (such as airline miles or cash back). These cards may have higher interest rates, making them great options for people who don’t carry a balance on their cards but not as great for people who do.

If you know that you are likely to carry a balance on your card, you may want to look for a lower APR. That number regularly fluctuates — the Federal Reserve keeps a running record of the interests rates on several different kinds of accounts, so check it as you’re applying for cards to see where the offered rate stands compared to the national average.

Other factors influence the interest rate you’ll be offered on credit accounts, such as your credit score. If you find that your interest rate is higher than average (or even just higher than you’d like it to be), you do have options. First, call your credit card issuer and ask about a lower rate. Have concrete information ready to back up your request — like the fact that you always pay on time, for instance.

If your credit card issuer won’t budge on your interest rate, ask them what you need to do to qualify for a lower rate. Check your credit score and try to get it in the good to excellent range by paying your bills on time, letting your credit age and clearing up any collections. Other ways to qualify for lower interest rates include making your payments on time, not using more than 30 percent of your available credit and avoiding applying for several cards at once.

Don’t get discouraged, and remember that there’s always room to improve when it comes to managing your credit.

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