What Does APR on Credit Cards Mean?

A credit card's annual percentage rate (APR) is the annual rate at which the interest that is charged for the credit card purchases will be calculated. Some credit cards charge an APR, based on the prime rate while others charge a rate unconnected to the prime.

Misconceptions

Don't confuse the APR with the monthly charge. Many people forget the annual rate means that the APR percentage is the charge for the entire year on the amount on your card, not the monthly rate.

Considerations

If you have a 0 percent APR, expect it to get higher within the first few months. Many cards start off with a 0 percent charge as an introductory rate, but they never stay at this rate.

Warning

Anytime you are late paying your bill, your credit card company has the right to charge you a higher interest rate from then on. Read your credit card agreement to find out how much higher it may go.

Prevention/Solution

Some credit card companies will negotiate the APR with customers who have a history of paying on time. If you have a high rate and a good history with the company, call and ask for a reduction.

Effects

People with good credit qualify for lower APRs because they represent a smaller financial risk to the company.