How do your cards stack up?

The average credit card interest rate is 22.63%, according to Federal Reserve data from the first quarter of 2024 – a significant increase from the average rate of 16.98% in 2019. However, current interest rates on that you’ll pay on your credit card can vary significantly, depending on the type of credit card and your credit rating.

Understanding how credit card annual percentage rates (APRs) work can help you minimize your interest costs and even eliminate them altogether. Here’s a look at historical and current credit card rates and how to lower the interest you pay.

In this article:

Current credit card interest rates by card type

There are several different types of credit cards to choose from, 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 reviewed over 150 of the top credit cards in 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 beginner credit card category includes both student credit cards and starter cards available to non-students. Additionally, some credit cards offer introductory promotions of 0% APR on purchases, balance transfers, or both. In these cases, our analysis includes only the standard purchase APR.

Read more: What is a good interest rate for 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 -s, 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: The Consumer Financial Protection Bureau’s Credit Card Market Report 2023

Read more: How to boost your credit score with a credit card

Historical credit card interest rates

Credit card interest rates have risen 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 do not 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 may fluctuate over time.

Credit card issuers typically use the Wall Street Journal prime rate as a benchmark and add an extra margin. As the prime rate fluctuates, expect your credit card interest rate to follow suit.

There are many different types of APRs for credit cards

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 common ones you may encounter:

• Purchase APR: This interest rate applies to any purchase made with the card.

• APR for balance transfer: This interest rate applies to balances you transfer from another credit card. It is generally the same as the purchase APR.

• Introductory DAE: Some credit cards offer a low APR 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.

• APR in cash advance: This interest rate only applies to cash advances made with the card.

• DAE penalty: Credit card issuers may charge this higher rate if you miss a payment by 60 days or more. The penalty APR will replace the purchase APR for at least six months.

You will usually be given a grace period for purchases

Most credit cards offer a grace period for purchases, which is a period of 21 or more days between the monthly statement date and the due date. If you pay your statement balance in full by the 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 the remaining balance and revoke the grace period for new purchases until you pay the balance in full. In other words, interest will apply to new purchases from the date of the transaction, further increasing costs.

Calculating credit card interest can be tricky

Calculating credit card interest on your own can be complicated, primarily because credit card issuers compound interest every day. In other words, the interest charged for a given day will also include the accrued interest from the previous days of the billing period.

If you want to estimate your potential interest costs, however, here’s how you can do it:

• Determine the daily interest rate: To do this, take the APR and divide it by 365. For example, if you have an interest rate of 22.36%, the daily rate would be 0.062%.

• Calculate your average daily balance: Take your monthly balance and divide it by the number of days in your billing cycle.

• Multiply the daily rate by the 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 daily balance of $3,000 and a daily interest rate of 0.062%, for example, that’s a total of $1.86 in interest per day.

Finally, you will multiply the daily interest amount by the number of days in the billing cycle. In this case, you would multiply $1.86 by 30, giving you an estimated interest of $55.80.

Why your credit card 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 an average interest rate of 22.63%.

If your monthly payment is $250, it will take you 37 months to pay off your balance, and you’ll end up paying about $2,520 in interest during that time—almost 40% of your original balance.

If the interest rate were 18%, you’d be debt-free after 34 months and 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 carry a balance from month to month, there are a few steps you can take to try to lower it:

• Just ask: Credit card issuers sometimes offer promotions to existing cardholders that may allow you to lower 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. Note that these offers usually include a balance transfer fee, which can range from 3% to 5% of the amount transferred.

• Request 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 may help you secure a lower interest rate. You can also take advantage of an introductory 0% APR promotion to pay off purchases or balance transfers over time without interest charges.

• 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 a portion of your balance from one month to the next, your card issuer will charge interest on the carried balance and revoke the grace period until you pay off previous 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 a quarter.

However, if you pay off your balance in full during a promotional 0% APR period or before the monthly due date, you’ll avoid interest entirely. ABA data shows that about one-third of credit card users pay in full each month.

Therefore, it is important to prioritize paying off the balance in full each month. The best way to do this is to get a budget to make sure you don’t spend more than you earn. You can also set up automatic payments to cover your entire 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 it off in full in the future.

Current credit card interest rates are near an all-time high, but there are ways you can lower your rate, minimize interest, and avoid paying interest altogether. If you use a credit card regularly, try to avoid overspending and make it a priority to pay off the balance in full each month.

If you carry a balance from month to month on one or more credit cards, consider putting your credit card spending on hold while you develop a plan to pay off your balances over time.

This article was edited by Alicia Hahn

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