what is a credit card aprUpdated: May 2, 2019

If you’ve looked through the monthly statements for your credit card or even checked our credit card reviews, you might have run across the term “APR.” Although you might be familiar with the general concept, you may not know the answer to the question, “What is a credit card APR?” An annual percentage rate (APR) represents a yearly interest rate associated with your credit card. To help you understand why your APR matters, we’re breaking down the details of credit card APRs.

What is a credit card APR?

As mentioned before, your credit card APR is a numeric representation of your yearly interest rate. In other words, it measures the interest you’ll be charged over the course of a year. APRs are usually just applicable if you carry a balance on your credit card. In most cases, credit card issuers will give you a grace period, the time frame between a billing cycle’s end date and the due date for that cycle’s bill, for your credit card bill. If you pay your credit card bill in full before the billing cycle ends (e.g., you make purchases in the beginning of March and pay them off the following week), you won’t have to pay interest on those purchases. On the other hand, if you carry a balance past the billing cycle’s close date — an option you should try to avoid — you will be charged interest.

Another thing you should understand is it’s possible for a credit card to have multiple APRs. For example, one card could give you a certain APR for purchases, a different APR for cash advances and yet another for balance transfers. Read on to learn more about the different types of APRs to keep track of.

There are different types of APRs

Depending on the credit card, different APRs may be applicable for different types of transactions. Before applying for a credit card, here are some types of APRs that you should know about:

Introductory or promotional APR: This type of APR is available for a limited time when you first use your card. An introductory APR is lower than the ongoing APR you would get after the promotion ends, and intro APRs may be applicable to purchases, balance transfers or a combo of these. For example, a card may offer a 15-month 0% intro APR on purchases and balance transfers (and come with a 3% balance transfer fee). Because an intro APR is available to you for only a limited time after opening a card (e.g., 15 months with our example), you’ll want to make sure you select a card with a long enough 0% intro APR for your needs. Additionally, make sure you’re aware of the card’s ongoing APR, so you’ll know what your APRs will be after the intro periods expire. If you’re looking for a card with an intro APR, visit our reviews of the best low APR credit cards.

Balance transfer APR: If you don’t already know, a balance transfer is exactly what it sounds like — you transfer the balance from one card to another. The purpose of completing a balance transfer is to consolidate debt, avoid high interest rates or both. While it’s best to choose a card with a long 0% intro APR on balance transfers, it’s also important to understand that credit cards also have an ongoing balance transfer APR, which is what your interest rate will be after the 0% intro APR runs out.

Purchase APR: This APR applies to your credit card’s purchases. In other words, after making purchases at a store or elsewhere, the purchase APR is applied to the amount you need to pay back for what you’ve bought. If you’re planning to make a large purchase, it’s usually best to select a card with a long 0% intro APR on purchases, as you’ll be able to avoid paying interest for a set period of time while you pay down the balance.

Cash advance APR: When you withdraw cash from an ATM using your credit card, or when cash is taken from your credit account via a bank teller or convenience check, a cash advance APR is applied. Cash advance APRs are usually higher than purchase APRs because cash advance transactions are a bit riskier, since you get cash from your credit account.

Penalty APR: This is an increase in your APR, applied when you fail to make an on-time payment, as we’ve explained before. Out of the types of APRs mentioned, the penalty APR is the one you want to watch out for the most, as it effectively raises your APR going forward. If you tend to pay your bills a bit late, you’ll probably want to get a credit card that doesn’t have a penalty APR.

How is your APR determined?

In short, there are a number of factors that impact your interest rate. For example, if your card has a variable interest rate (most credit cards have variable rates), your APR is partly determined by the Federal Reserve. When the Fed votes to increase short-term interest, your credit card issuer will usually opt to also increase your APR, as well. If changes are made to your APR, companies are required to notify you 45 days in advance.

Although the Fed’s decision to increase interest rates is out of your hands, there are some factors that are in your control, including your creditworthiness and credit history. Your creditworthiness may shape your APR because credit card issuers review your credit health, and they then use the review to determine what interest rate you’ll get. For instance, an issuer may review your credit scores, essentially numerical representations of your creditworthiness, and decide where your APR sits. Higher credit scores usually lead to lower APRs, whereas lower credit scores often result in increased interest rates. That’s because the higher the credit scores, the more financially reliable you may seem to credit card issuers. When you have lower credit scores, credit card issuers may view you as more of a risk. As such, if you have lower credit scores, credit card issuers might extend a higher interest charge to you because of your relatively poorer credit health. Our guide to your interest rates details the other factors that determine your APR.

How to lower your interest rate

Interested in trying to lower your APR? The easiest way to lower your APR is to contact your credit card issuer and ask for a lower APR. Keep in mind that if you just got approved for the card, the issuer will likely deny your request. Additionally, to see if your credit has changed since the time you were approved for the card, they will probably pull your credit reports or credit scores. Also, understand that they can tell you “no” when you ask for a lower APR, but it can be worth it to ask. Just keep in mind that it might result in a hard pull on your credit, which could lower your scores. Not the end of the world if you receive a lowered APR, but if you are denied, it’s good to plan for the possibility.

Another way to lower your interest rate is to clean up your credit reports, which directly impact your credit scores. When we talk about “cleaning them up,” we mean checking your credit reports for errors and working to boost your credit scores. To do the latter, you’ll want to monitor your credit reports and scores to know your starting point and follow your progress, pay your bills on time, use your credit card responsibly and avoid canceling credit cards. You should also avoid getting new cards too frequently, since doing so could lead to the appearance of multiple hard inquiries on your credit reports, making you look desperate. Once you see an improvement in your credit scores, ask your issuer to reevaluate your account to see if you qualify for a lower rate. By improving your credit health, creditors will see your level of financial reliability in a positive way, increasing the likelihood of them offering you a lower interest rate.

To learn more about everything credit-related and how you can have good credit health, follow our credit monitoring blog.

Disclaimer: This content is not provided or commissioned by the credit card issuer. Opinions expressed here are author’s alone, not those of the credit card issuer, and have not been reviewed, approved or otherwise endorsed by the credit card issuer. This content was accurate at the time of this post, but card terms and conditions may change at any time. This site may be compensated through the credit card issuer Affiliate Program.