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The average credit card interest rate is 22.63%, according to Federal Reserve data from the first quarter of 2024 — a significant jump from the average 16.98% rate in 2019. However, the current credit card interest rates you’ll pay can vary wildly, depending on the type of credit card and your creditworthiness.
Understanding how credit card annual percentage rates (APR) work can help you minimize your interest costs and even potentially eliminate them altogether. Here’s a look at historic and current credit card rates, and how to lower what you pay in interest.
In this article:
Current credit card interest rates by card type
There are several different types of credit cards from which you can choose, some of which charge higher rates than others. In particular, store credit cards and cards designed for people with limited or poor credit tend to charge the highest rates.
We looked at more than 150 of the top credit cards across seven categories to give you a quick summary of the average APRs for some of the most common types of consumer credit cards:
Note that the starter credit card category includes both student credit cards and beginner-friendly cards available to non-students. Additionally, some credit cards offer introductory 0% APR promotions on purchases, balance transfers, or both. In those cases, our analysis only includes the standard purchase APRs.
Read more: What is a good interest rate on a credit card?
Average credit card interest rates by credit score
Your credit score not only influences your credit card options but also your card’s APR. While many store and secured credit cards offer the same interest rate to all cardholders, others offer a range of APRs, with lower rates reserved for borrowers with higher credit scores.
Here are the average interest rates by credit score range at the end of 2022:
Source: Consumer Financial Protection Bureau’s 2023 Consumer Credit Card Market Report
Read more: How to boost your credit score with a credit card
Historic credit card interest rates
Credit card interest rates have increased significantly in recent years due to the Federal Reserve’s attempts to combat inflation and other factors. Here’s how APRs have changed over the past decade:
Source: Federal Reserve
How credit card interest works
Credit card interest works differently than other types of consumer debt. This is primarily because, unlike installment loans, credit cards don’t have a set repayment term. Here’s what you need to know.
Credit card APRs are generally variable
With very few exceptions, most credit cards charge a variable interest rate. This means that your card’s interest rate can fluctuate over time.
Credit card issuers usually use the Wall Street Journal prime rate as their benchmark and add a margin on top of it. As the prime rate fluctuates, expect your credit card’s interest rate to follow suit.
There are many different types of credit card APRs
Credit cards often list multiple APRs for different types of transactions. While those APRs can vary by card — and some cards may not charge certain types of APRs — here are some of the common ones you may come across:
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Purchase APR: This interest rate applies to any purchase you make with your card.
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Balance transfer APR: This interest rate applies to balances you transfer from another credit card. It’s generally the same as the purchase APR.
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Introductory APR: Some credit cards offer an introductory low or 0% APR on purchases, balance transfers, or both. Depending on the card, the 0% APR promotion can last anywhere from six to 20+ months, after which the card’s standard APR applies.
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Cash advance APR: This interest rate applies only to cash advances made with the card.
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Penalty APR: Credit card issuers may charge this higher rate if you miss a payment by 60 days or more. The penalty APR will supersede the purchase APR for at least six months.
You’ll typically get a grace period on purchases
Most credit cards offer a grace period on purchases, which is a period of 21 or more days between your monthly statement date and due date. If you pay your statement balance in full by your monthly due date, your card issuer won’t charge you interest.
However, if you don’t pay in full, your card issuer will charge interest on your remaining balance and revoke your grace period on new purchases until you pay your balance in full. In other words, interest will apply on new purchases from the transaction date, further increasing your costs.
Calculating credit card interest can be difficult
Calculating credit card interest on your own can be complicated, primarily because credit card issuers compound the interest every day. In other words, interest charged for a particular day will also include accrued interest from previous days in your billing period.
If you want to estimate potential interest costs, however, here’s how you can do it:
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Determine your daily interest rate: To do this, take your APR and divide it by 365. For example, if you have a 22.36% interest rate, your daily rate would be 0.062%.
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Calculate your average daily balance: Take your monthly balance and divide it by the number of days in your billing cycle.
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Multiply your daily rate by your daily balance: Once you have your rate and balance information, you’ll multiply them to get an estimate of what you’d owe. With a $3,000 daily balance and a 0.062% daily interest rate, for instance, that’s a total of $1.86 in interest per day.
Finally, you’ll multiply your daily interest amount by the number of days in your billing cycle. In this case, you’d multiply $1.86 by 30, giving you an estimated $55.80 in interest.
Why your credit card’s interest rate matters
Credit card debt is one of the most expensive forms of consumer debt, and if you’re not careful, it can have a devastating impact on your financial well-being.
For example, the average credit card balance is $6,501, according to Experian, one of the three national credit bureaus. Let’s say you have that much debt on a credit card with the average 22.63% interest rate.
If your monthly payment is $250, it’ll take you 37 months to pay off your balance, and you’ll end up paying roughly $2,520 in interest over that time — nearly 40% of the original balance.
If your interest rate were 18% instead, you’d be debt-free after 34 months, and you’d pay a total of $1,801 in interest — a savings of $719.
How to lower your credit card interest rate
If you have a credit card with a high APR and you carry a balance from month to month, there are a few steps you can take to try to reduce it:
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Just ask: Credit card issuers sometimes offer promotions to existing cardholders, which may allow you to reduce your interest rate for a period of time. You may even qualify for a 0% APR promotion on balance transfers, allowing you to move debt from a high-interest credit card and pay it off interest-free over time. Just keep in mind that these offers typically include a balance transfer fee, which can range from 3% to 5% of the transferred amount.
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Apply for a new card: If you’re still using your first credit card, your APR may be high because your credit was less than stellar when you applied. Depending on what your credit profile looks like now, applying for a new card could help you secure a lower interest rate. You could also take advantage of an introductory 0% APR promotion to pay off purchases or balance transfers over time with no interest charges.
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Improve your credit: If you have a high APR because your credit needs some work, take a look at your credit reports to identify areas you can address. Then, take concrete steps to improve your credit score and gain access to more affordable financing options.
How to avoid credit card interest
If you carry some of your balance from month to month, your card issuer will charge interest on the balance you carried over and revoke your grace period until you pay off past and new purchases in full. According to the American Bankers Association (ABA), about 43% of credit card users carry over a balance at least once per quarter.
However, if you pay off your balance in full during a 0% APR promotional period or before your monthly due date, you’ll avoid interest charges entirely. ABA data show that roughly a third of credit card users pay in full every month.
As a result, it’s important to prioritize paying your balance in full each month. The best way to do this is by getting on a budget to ensure you don’t spend more than you earn. You can also set up automatic payments to cover your full monthly statement balance.
If you already have a sizable balance, evaluate different strategies to pay off your credit card debt, so you can set yourself up to pay in full going forward.
Current credit card interest rates are near an all-time high, but there are ways you can potentially reduce your rate, minimize your interest charges, and avoid paying interest altogether. If you use a credit card regularly, try to avoid overspending and prioritize paying your balance in full each month.
If you’re carrying a balance from month to month on one or more credit cards, consider putting a hold on your credit card spending as you develop a plan to pay off your balances over time.
This article was edited by Alicia Hahn
Editorial Disclosure: The information in this article has not been reviewed or approved by any advertiser. All opinions belong solely to Yahoo Finance and are not those of any other entity. The details on financial products, including card rates and fees, are accurate as of the publish date. All products or services are presented without warranty. Check the bank’s website for the most current information. This site doesn’t include all currently available offers. Credit score alone does not guarantee or imply approval for any financial product.