Credit cards have a lot of value in today’s world but they also come with a cost – interest rates. Finding the best interest rates for your credit card can be very challenging since credit cards offer them differently.
Interest rates are the amount of money that you owe from the credit card issuer for using the credit to pay for services, goods, and other transactions. Interest is a percentage of the money that you borrowed that must pay on top of the amount owing. Different factors affect your interest rate.
In this article, you will learn more about interest rates and how you can find the most ideal interest rates when it comes to credit cards.
What Is the Function of an Interest Rate?
An interest rate is what the credit company charges you for borrowing money.
You can easily spot the interest rate by looking at the terms and conditions under interest rate which is usually mentioned as APR or annual percentage rate.
There are different kinds of interest rates for different transactions when you use the card but most of the time, it is the purchase interest rate that makes an impact.
This kind of interest rate is charged to your account every time you use the card to purchase an item. Many credit cards often charge you an interest rate if you are not able to pay the entire bill in full for that month.
What is the Ideal Interest Rate?
Credit card interest rates differ a lot from card to card. Some credit cards have lower interest rates like balance transfer cards while others like retail rewards credit cards tend to have a higher APR.
If you’re looking for a credit card with a good interest rate, the ideal interest rate is based on your credit score. Those who have good to excellent credit scores will most likely have a lower interest rate than those who have fair to bad credit scores.
This is why you need to know your credit score before you apply for a card.
How to Get a Low-Interest Rate
While you may already be satisfied with your current interest rate, there are still various ways for you to lower it.
Having a lower interest rate can be helpful in terms of your finances as you can expect fewer charges made from using the credit card. First, you need to build your credit by paying on time with your other cards and loans.
Make sure that you keep the credit utilization rate at only 30% or less. Then, you can find a competing credit card and check to see if they offer a lower interest rate than what you have right now.
If they do offer better terms, you can always reach out to your bank and provide them with this information and make a deal.
Make a Request and Don’t Be Afraid to Negotiate
Speaking of reaching out to your credit card provider, there are also things that you can discuss with them to help lower your interest rate. Present all the information that you have found upon exploring your other options and talk to them about it.
Do not be afraid to negotiate with your current provider. You can also send in a request to see if they will lower your interest rate for you.
Before you do, make sure that you also have a clear history of paying on time and abiding by the terms and conditions set by the provider. This will help boost their confidence to give you the interest rate that you need.
Why You Should Pay Your Balance in Full?
It is always important that you pay your balance in full. But what should you pay your balance even if all you need to do is to pay the minimum amount?
Paying off your credit card balance means you are guaranteed to have an increase in your credit score. This also ensures that you have more credit to use in the coming months instead of having to use a smaller amount of credit.
You might also want to consider transferring your balance to a balance transfer credit card that has a lower interest rate to help you save money while also improving your credit score in the long run.
Many of these balance transfer credit cards have long zero-interest periods which can help you pay off your balance before the period expires.
How to Avoid Paying the Interest Rate on Your Credit Card
We all know it can be very annoying to have to pay for the interest rate which is why a lot of people try to go for the zero interest fee credit cards out there.
There is one way to avoid paying the interest rate on your credit card and that is to pay in full. Paying your balance in full every month means that you do not get charged with the interest rate unlike paying for the minimum due.
All credit card issuers charge interest on the remaining balance of the card that is carried over to the next billing cycle. If you want to avoid paying large interest fees, pay your balance in full all the time.
Improve Your Credit With These Steps
Since most of the time your interest is tied to your credit score, there are a lot of things for you to do to improve your credit. This allows you to apply for a credit card that has a lower interest rate that you can avail.
The first thing that you can do before applying for a card is to check your credit reports. Know where you stand in terms of your credit capabilities. This will immediately tell you what you need to do to fix it and you need to fix it fast or before you apply.
Take note of credit information that might not be accurate and report them immediately. If you find that something does not add up, report it to the bureau that handles your credit information for them to review it. Always dispute any credit errors.
Making Positive Steps Towards Your Credit
There are even more ways for you to make positive steps to correcting and improving your credit. You need to pay down all of your credit card balances right before you apply for a credit card. This will show up on your credit history which the lender will take into account.
It will largely impact your interest rate if they see that you still have pending payments on your other accounts. Show a positive credit history and the issuer will most likely give you a better and much lower interest rate.
If you don’t have any credit history, open a new account and start building your credit. You can also use a secured credit card or credit-builder card to improve your credit so you can then use it to apply for a card that has better interest rates.
Conclusion
Credit card interest rates play a very critical role when considering applying for a credit card. These rates affect how you use your card and how you’re able to pay for them. Follow the steps mentioned above so you can have the best possibility to get the most ideal interest rate for your credit card.