Tons of tools exist to help you compare credit card offers side by side. But what exactly are you looking for? How can you tell what’s a good offer for you?
A credit card’s APR is often the most commonly promoted feature of a card, and it’s the one feature that you can easily compare across cards. Here’s how to recognize what is a good APR versus a bad one and choose the card that’s right for you.
What Is APR?
An APR is the annual percentage rate for a credit card or loan and it’s a way to express the interest you pay to borrow money. It represents the interest if it were applied by the year (though credit card interest is typically applied daily).
For credit cards, the main purpose of the APR is to compare one offer against another. You can’t know how much it’ll actually cost you to use the credit card without knowing exactly how much of a balance you’d carry and for how long, but comparing APRs can help you see which card would be cheapest to carry a balance on.
Types of credit card APRs include:
- Variable APR: A variable interest rate is tied to the prime rate, an industry norm that fluctuates with the Federal Reserve Rate that goes up and down with economic conditions. A variable interest rate will rise and fall over time, typically changing around once per quarter, over the life of the loan or credit card.
- Fixed APRs: A fixed rate isn’t tied to the prime rate, so lenders can only change it if your credit score and history change, and they have to give you 45 days’ notice of any change. Fixed APRs are rare for credit cards but might be available for mortgages or other loans.
When you sign up for a credit card, your agreement could include several APRs that apply to different uses of the card: a purchase APR is for transactions where you buy stuff with the card, introductory APR is a lower promotional rate for a period when you first start using the card, penalty APR is a higher rate for a period if you make too many…