The Pivotal Concept of Credit Card Rates

By on | Credit Card Debt Consolidation Information.

Credit cards facilitate the lives of millions of Americans by ensuring the attainment of emergency funds, the affordability of large expenditures, the payment of purchases overseas, and the booking of reservations, among other things. For fiscally-responsible consumers, credit cards are a formidable, convenient tool enabling them to achieve a multitude of money management objectives. Before charging a plastic card, however, individuals should do their homework. By shopping around for attractive credit card rates, consumers will be better able to tackle their consumer debt and pay off the finance charges in a more expeditious manner. With a good credit card rate, borrowers can save on interest and fees. By utilizing low interest credit cards, individuals can reap significant savings on one monthly statement alone. By paying less in interest and more in principal, they can attain a zero balance more quickly and free up more monthly cash. It is therefore beneficial to compare the rates offered by different credit card companies.Typically, the credit card rate that is advertised is the bare interest rate. The actual cost of borrowing is reflected in the interest charge known as the annual percentage rate (APR), which is expressed in terms of a yearly rate. This is the rate that consumers pay on cash advances, balance transfers, and outstanding balances. The average APR on credit cards in the U.S. is approximately 18%, and companies generally post a maximum ceiling on their interest rates. This is usually imposed on individuals who are delinquent in their payments. A number of states have passed usury laws restricting the maximum interest rate that creditors can charge their clients. Consumers should familiarize themselves with the various types of APRs that a credit card company may charge. The daily periodic rate is calculated by dividing the APR by 365 days. Each credit card has at least one type of APR, and consumers who request cash advances or balance transfers, fail to pay in a timely manner, or simply make purchases can expect to encounter several APRs. Credit cards are usually associated with a number of APRs including the following:1.  APR for purchases vs. APR for balance transfers and cash advances. The APR on balance transfers and cash advances is generally higher than that on general purchases. 2. Penalty rate or default. Individuals with bounced checks, late payments, or a deteriorating credit score typically face a higher APR. Some card issuers slap a higher interest rate on consumers who are delinquent on their loan or credit card payments with other lenders or who have too many credit cards. 3. Introductory APR. Many credit card companies offer a low or zero APR on purchases, balances transfers or both for a fixed period of time, usually 6 or 12 months. Upon the expiration of the introductory rate, a different rate applies. 4. Tiered APRSome credit card companies apply different rates of interest to different amounts of outstanding balances. For instance, they might offer 16% on balances ranging from $1 to $600 and 18% on balances exceeding $600. 5. Fixed rate APRWith a fixed rate credit card, the APR generally does not fluctuate. It can change, however, if the credit card company provides 15-day notice to the borrower of a change in terms. The APR may also be increased if the borrower is delinquent on his or her payments or a check bounces.6. Variable rate APR. Credit cards with a variable rate have APRs that fluctuate in accordance with changes in the Treasury bill rate, prime rate, or another interest rate index. Prospective borrowers should carefully read the credit card application and agreement to find out the frequency of changes in the card’s APR. 7. Delayed APR. This means that a different rate will be charged upon the expiration of the introductory APR period. Credit companies charge consumers finance fees, which constitute the cost to be paid for using credit. The amount of the finance charge depends partially on the APR and the borrower’s outstanding balance. Some companies post a minimum finance charge. Consumers who carry balances from month to month should avail themselves of a low interest credit card, which offers a low introductory APR or a low fixed rate. Secured credit cards are ideally suited for individuals facing bankruptcy or credit issues. The borrower is required to deposit cash into an account, which serves as collateral. The amount of the deposit determines the credit line. A secured credit card, which may be obtained at a credit union and some banks, usually waives the annual fee and boasts a lower rate of interest. Unsecured credit cards are a boon for individuals with battered credit. Numerous offers with competitive interest rates are available online for consumers with bad credit.To obtain the most favorable credit card rates, prospective borrowers should consider the following tips:

Requesting a copy of their credit report from the three credit reporting agencies and ensuring that the information is accurate. (Credit card companies rely on FICO scores to set interest rates) Comparison-shopping for the credit cards offering the lowest interest rate. Not exceeding their card’s limit, paying their bills on time, and remaining current on their payments.