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APR is one of those financial terms that’s as easy to learn as it is to forget. In fact, a creditcards.com poll of 2,315 U.S. adults (including 1,681 who have at least one personal credit card) indicated that 48% of cardholders that don’t know their own APR.
Maybe it’s blissful ignorance. Maybe it’s a lack of intrigue. But either way, can you blame them? Be honest: Can you recite your APR? What exactly is APR on a credit card and why should it be an important factor in which one you choose?
Fine print, industry jargon and legalese can make it difficult to interpret its meaning as it pertains to you and your credit cards. But the truth is, any current or prospective cardholder should at least have a basic understanding of its importance.
What is APR?
APR stands for Annual Percentage Rate — essentially your interest rate on the year. When it comes to other financial products such as mortgages and loans, APR is a broader term that’s used to encapsulate broker fees, points and anything else that contributes to the price of borrowing. Since credit card debt is a slightly simpler beast with fewer borrowing costs, sometimes terms get used interchangeably.
Think of APR as the interest rate you’ll pay on the year for carrying a balance. Simple as that.
But really, what does APR mean?
The significance of APR rests not in its definition, but rather its implications.
For those who make it their priority to pay off their credit card in full every single month, APR means little. If there’s no balance, then there’s nothing on which to charge interest.
Life, however, isn’t always that straightforward. Emergencies happen. Big purchases can stack up — so can debt. The higher your APR, the more ground you’ll have to make up at month’s or year’s end. A particularly concerning truth given that the aforementioned survey also reported 24% of respondents carrying a balance on at least three cards over the past six months.
Think about that: Carrying a balance on three different cards, with three different APRs, all at the same time. Not only does it dig you deeper in debt, but also deeper in complexity. For both prevention and recovery, it’s instances like these that make it essential for you to know your APR down pat.
How can I lower my APR?
Your APR on any given card won’t fluctuate on a day-to-day basis. Most often, the APR you sign up with is the one you’ll retain throughout your card’s lifetime. But there are some proven methods to lower your rate.
Pick the right card from the start
0% APR credit cards do exist. And if you lump in dedicated balance transfer cards, cards with 0% introductory rates, and cards with particularly low (sub-5%) APRs, there’s a wide open field of accessible credit cards with more than reasonable interest. The key is keeping a sharp eye on the numbers. APR isn’t the sexiest criterion for sizing up cards, but it could be the most valuable. No matter how responsible of a spender you are, you’ll appreciate the safety of a sensible rate.
A quick word on balance transfer cards: If you’re carrying outsized debt across multiple cards, you may want to consider one. Most offer a 0% APR, which means you’ll save money once you consolidate all of your debt in one friendly environment. Paying it back is faster, easier and cheaper when you’re not watching the percent sign work against you.
Stake out the competition
As long as you’re not overburdened with credit cards, it never hurts to scan the landscape and see what all is out there. Most issuers have a card in each category to compete with one another, so no matter how tied you are to your rewards structure or perks, there’s likely another one out there with similar features. And if it has a lower APR? That’s one fewer thing to think about while you’re making a decision.
Boost your credit score
The better your credit score, the stronger your case will be for a low APR. You know when you’re shopping for a mattress, and suddenly every TV commercial, social media ad and billboard is showcasing mattresses? Similarly, as you improve your credit score, you’ll start running into more and more offers with a low APR. It puts you in the upper tier of borrowers, which exposes you to offers and rates you wouldn’t find otherwise.
So what if you have all your bases covered, all the cards you want and a credit score worth writing home about? Don’t expect a pat on the head and a better rate just for good behavior. Call and ask! If you’re a valued and/or long-term customer, they’re sure to hear you out. Remember — honey over vinegar.