Interest rates can be your worst enemy: 3 things to know


What is a credit card interest rate, and what does APR mean to you?  For credit cards, the interest rates are typically stated as a yearly rate. This is called the annual percentage rate (APR). On most cards, you can avoid paying interest on purchases if you pay your balance in full each month by the due date. Some credit card companies offer a low introductory rate for new customers and on balance transfers for six months or one year and others charge different APRs depending on how the credit card was used.

This post will primarily focus on the 4 things you need to know when it comes to interest rates.

Interest Rates (APR)

Can they change my Interest Rate?

Unfortunately, there’s no three strikes with creditors, only two. If you’re late on two consecutive payments, 60 days or more, the issuer can apply the penalty rate.  If you trigger the penalty rate (for example, by going over your credit limit or paying your bill late), your credit card company may notify you that your rates will be increasing. Keep in mind, the credit card company must tell you at least 45 days before your rates change. The other reason your rate could change is that you signed up for the card at a lower introductory interest rate and that introductory period has expired.

When is interest charged?

You will be charged interest whenever you don’t pay the full balance from the previous billing cycle or if you have an outstanding balance on your credit card from a balance transfer or introductory purchase rate offer.  There are also some credit cards that do not have interest-free days – which means that interest will be charged on all purchases, even if the closing balance is paid in full each month.  If you want to avoid paying interest, you need to pay your credit card balance in full before the due date each month.

Is there a way to lower my current APR?

The most successful way of lowering your interest rate is to raise your overall credit score. People with excellent credit scores pay the lowest APR’s and have the highest credit limits! Also you may be able to lower your interest rate by contacting your issuer directly   and requesting a decrease in your rate. In fact, according to one survey, your odds are fairly good, 69% of surveyed cardholders who asked for a lower rate were able to negotiate a rate reduction with their issuer.

Bottom line

The best way to keep your APR’s reasonable is to keep your credit score a top priority. Credit companies have no problem offering their best rates to reliable and creditworthy consumers, staying ahead of your payments and balance will aid in this, as well!