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How do credit card companies determine APR?

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    Annual Percentage Rate (APR) is one of the most important factors to consider when choosing a credit card. APR can be understood as the yearly interest you’re charged for the use of a revolving line of credit if you don’t pay the balance off every month. In other words, it’s the cost of borrowing using your credit card.

    The purpose of APR is to share with consumers the interest they will be charged if they do not pay their balance in full at the end of each billing cycle. APR is also a handy way for consumers to compare interest rates between different credit card issuers, and find the best one for their needs, (based on eligibility).

    One factor that weighs on APR is credit score. Generally, the better your credit score, the lower the APR. With a good credit score, you may also be more likely to receive more credit card offers. These offers can include low or 0% APR offers for introductory card rates or balance transfers.

    What is APR?

    APR is calculated based on the daily interest owed on the account accumulated during a credit card billing cycle. This includes the 21 to 25 days grace period between the monthly statement being generated in the billing cycle and the card payment due date. The best way to avoid paying interest is to pay off the balance owed on your card by the payment due date, or before your grace period expires. However, this may not always be feasible for cardmembers who carry larger balances. In that case, it is very important to make the minimum monthly payment to avoid negatively impacting your current APR

    Where is my APR located?

    You can find the APR and purchase interest accrued listed on the monthly credit card statement you receive in the mail or online. You can also find the APR in the cardmember agreement that comes with your credit card in the mail, highlighted in a pricing table on the first or second page of the agreement.

    What are the factors that go into determining your APR?

    Just as there are multiple factors that determine creditworthiness, there could also be multiple factors that come into play when determining your APR, such as:

    • Credit score
    • Income level
    • Pre-existing relationship with a financial institution issuing the credit card
    • Your age: While the minimum age to receive a credit card is 18, credit card sign up requirements are more stringent for people who are under 21. For these individuals, it may be easier to obtain a student or starter credit card and then after demonstrating creditworthiness for several months qualify for and obtain a card with a higher credit limit or lower APR.

    What are the different kinds of APR?

    The type of APR that most cardmembers and credit card consumer sites quote is called Purchase APR. The other types of APR that may apply with your credit card are:

    • Periodic APR—taking your APR and dividing it by 365 days is how you calculate your daily interest rate on any credit card balances you owe. This daily rate is known as the periodic rate.
    • Promotional or introductory APR—this can be a special 0% or lower APR offer for six months to a year on purchases or balance transfers. Usually these come with newer cards. But these can also be offers sent to you by your credit card issuer, including as promotional APR checks in the mail
    • Cash advance APR—typically, the APR on any cash advance you take from an ATM or a bank branch using your credit card will be higher than a standard Purchase APR
    • Penalty APR—this is the rate your card issuer may charge if you are late in paying as specified in your credit card agreement or have missed payments

    For more information on these different types of APR, consult your cardmember agreement for the terms and conditions. Every credit card issuer is required to provide a cardmember agreement either by mail or by making it available for downloading online.

    Can my APR go up even if my account is in good standing?

    The APR can go up if you carry a high balance on your credit card, even if you don’t miss a payment or go over your limit. Credit cards with a variable rate can also increase if overall interest rates are raised by the Federal Reserve, as in 2023.

    Steps to help improve your APR

    Generally, the best way to improve the APR and other features you receive with credit card offers is to improve your credit score. And that starts with healthy credit habits and sound financial behavior. Part of that sound financial behavior that may help improve your credit score involves making payments on time and paying more than the minimum payment each month, while keeping balances at manageable levels. Carrying a high balance could result in a higher APR being charged for a particular card and also impact your credit score.

    Checking your credit report regularly for any derogatory items, collections or suspicious transactions reported to the major credit bureaus is a best practice to get out ahead of any potential problems. Chase Credit Journey® is a free platform that can help you track your credit score and monitor activity. By using your cards and low or 0% APR offers responsibly with a plan for paying down debts, you can better position yourself for financial success.

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