Credit cards can be a useful tool in your personal finance arsenal. These cards can help you build credit, cover emergency expenses, or simply earn you points for travel and cash back.
Although credit cards can be important in establishing your credit history, it is essential that you charge any purchase knowingly. Because if you don’t pay off your credit statement at the end of each month, your balance will accrue interest. And unless you have a 0% introductory APR or another special rate card, those fees can add up quickly: the average credit card interest rate was 16.27% in August 2022, the most recent figure provided, according to the US Federal Reserve.
Whether you’re looking for your first credit card or looking for the latest rewards credit cards, here’s a look at what the current landscape looks like.
What is the average credit card interest rate?
The average interest rate on a credit card is usually between 10% and 30%. Depending on the category of the card and your creditworthiness, you traditionally pay more or less interest.
Credit card interest rates can fluctuate and rates are currently on the rise: the average credit card interest rate increased over a six-month period in 2022, from 16.17% to 16.65 %, according to CNN. Credit card balances – and debt burdens – have also increased.
The Consumer Financial Protection Bureau (CFPB) examines the consumer credit card market – credit card issuer practices, consumer debt levels, and more. – every two years. In the Consumer Credit Card Market Report 2021, the authors reported on average credit scores and interest rates and reported the following.
Credit ratings and interest rates
|Credit score||Approximate average interest rate|
|Superprime (720 and above)||17%|
To dig deeper, here’s information on credit card pricing by card type in the United States, according to Statista in a 2019 survey.
Comparison of credit card interest rates
|Credit Card Type||Average interest rate|
|Secure credit card*||24.99%*|
|Student credit card||17.79%|
|Business credit card||15.24%|
|Instant Approval Credit Card||20.06%|
|Airline credit card||17.50%|
|Rewards credit card||17.46%|
|Low interest credit card||14.61%|
|Balance transfer credit card||16.77%|
*This rate is taken from a CNBC Article in 2022.
APR stands for annual percentage rate, the annual interest a credit card charges the borrower. And as you can see from the charts, credit card APR can vary widely – the average credit card APR will be different for every card and every applicant.
The type of card and a person’s creditworthiness can influence interest rates on a credit card. For example, a secured credit card – a card a consumer uses to establish their payment history or a credit to boost their credit rating – usually carries a higher interest rate. While someone with a high credit score and solid payment history would likely be approved for a rewards credit card with a lower (but variable) APR.
Ultimately, the average credit card interest rate will vary depending on several factors. That said, there are ways to lower the interest rates on your credit card.
How to lower your interest rate on a credit card
There are several ways to lower the interest rate on your credit card. Here’s how you can lower your rate, either by sticking to your current card or through other methods.
- Make a balance transfer. If you have a balance on a credit card with a high interest rate, you may be able to transfer your balance to another credit card. Balance transfer credit cards typically charge variable rates (usually a fixed price or a percentage of the balance amount you want to transfer), and some cards offer special rates like 0% intro APR for balances transferred within First 60 days after opening an account, for example. There are many balance transfer cards out there, but you usually need a good or better credit score to get one.
- Take advantage of introductory offers on credit cards. Going from that last point, there are tons of cards that offer special offers for new cardholders. You can look for a credit card with an initial APR of 0% or look for one that offers an interest-free balance transfer for more than 12 months so you can pay off an existing amount over time.
- Apply for a consolidation loan. A debt consolidation loan offers relief to people who are struggling to manage their credit card or other high interest debt. Debt consolidation or personal loans are avenues to explore for getting an APR and generally better loan terms if you find yourself unable to repay your credit card debt under current circumstances.
You can also call your credit card issuer and see if you can negotiate a more favorable interest rate or increase your credit limit. Your mileage will vary, but if you’re a long-time customer and have made regular, on-time payments, you have some leverage.
Finally, you can pay your card balance each month to avoid accumulating interest charges on your account. If you’re able to do that, that’s your best-case scenario. (And that way, you won’t have to factor the credit card’s APR so much into your decision when choosing between different cards.)
How to improve your credit score
If you have a less than stellar credit history, you can take steps to improve your creditworthiness. It won’t be an overnight fix, but with diligence, consistency, and good habits, you can increase your credit score steadily over a period of time.
Here are five ways to improve your credit score:
- Pay your bills on time. Missed and late payments can hurt your credit score and cause all sorts of problems for your finances. Create a budget and set regular bill payments to automatic payment. And again, do your best to fully pay off your credit card bill at the end of each statement cycle to avoid paying interest on your credit card purchases.
- Check your credit score regularly. A service like Credit Karma is free and can keep you up to date with your credit history. You can also access your reports for free at AnnualCreditReport.com. Many banks and credit card companies (of which you are a customer) will also provide you with your credit score.
- Prioritize paying off high-interest debt. Interest on credit cards, interest on loans – it all adds up. Review the amounts, terms, and terms of all your interest-bearing debts and develop a plan to pay them off. Also, make extra payments to settle your debt when you can, to avoid paying more interest over time.
- Keep your old accounts open. A long credit history contributes to your overall credit score, so it’s probably in your best interest to leave your credit card accounts open (although you want to weigh your options if a particular card has high annual fees, for example) . You can assign certain cards to regular bill payments to keep your cards open and active.
- Apply for credit consciously. Building credit is important, but it’s essential that you do it the right way. For example, store credit cards usually have a high APR and you can only use them at a particular retailer, while cash back credit cards may not have such a high APR, can be used anywhere they are accepted and can bring you regular rewards. . Be selective when opening new credit card accounts and applying for loans. Don’t take on credit card debt willy-nilly in the name of credit, especially if you don’t have a debt repayment plan.
It’s especially helpful to boost your credit score before a big purchase. If you plan to buy a home in a year and a half, for example, you’ll want to work on building your credit now to improve your chances of qualifying for a mortgage at a good rate later.
Credit card interest rates can go up, but don’t let that deter you from applying for a card – as long as you’ve done your research and are responsible for it. And keep in mind that credit card accounts aren’t one size fits all; it is important that you examine the APR of the credit card, but also the other fees and potential rewards that are available with it.
Contributor Kathleen Garvin (@itskgarvin) is a personal finance writer based in St. Petersburg, Florida, and former managing editor and marketer at The Penny Hoarder. She owns a content writing business and her work has appeared in US News, Clark.com and Well Kept Wallet.