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Understanding credit card interest rates

On Behalf of | Feb 18, 2017 | Credit Card Debt

Using credit cards is a part of everyday life for many people in Davidson. While some are able to pay off their balances each month and avoid making interest payments, others have balances that continue to accrue over time. Therefore, it may be helpful for those people to understand how interest rates work.

Every time a credit card gets used, it is like taking out a small loan. The credit issuer advances the user money and then that user must pay that amount back, plus interest. The amount of interest due is based on the total balance for that month. According to USA Today, the credit card company will take the balance due from each day for the month, calculate the average and then apply the interest rate to that number to figure out how much interest is due.

What annual percentage rate a person’s credit account may have will depend on a few different things. People with better credit scores may qualify for lower APR’s than those with poor credit. In addition, some types of credit cards may have rates that fluctuate or that come with an introductory low rate that then rises after a certain period of time.

Credit card users may wish to pay extra close attention to their bills because the Motley Fool reports that interest rates are currently on the rise. The average APR has risen to the highest it has ever been, at 15.36 percent. This increase may be because lenders are increasingly offering customers better rewards for using their cards and using higher interest rates to make up the difference. It may also be because lending in general has been slow over the last several years. Users who think that they may qualify for a lower APR may wish to contact their credit card company.


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