Interest Rate Basics. What You Don’t Know Can Hurt You.
Do you know the current interest rate on your credit card? If you do not know your rate off the top of your head, you are like many people in America. If you do, great job, you are ahead of the game!
According to The Federal Reserve, the average credit card charges 13 percent. For balance carriers, the average is 13.5 percent. If you are a person who pays off your bill each month to avoid interest, you should still be interested in your credit cards’ interest rates. Because, as we all know, the future is anything but predictable. Creditcard.com advises that roughly 270,000 people in the United States file for unemployment every week. In addition, many other Americans find themselves struggling to pay for unexpected medical bills, home repairs, car repairs, etc. In situations like this, people may be forced to use their credit line to stay afloat, and they may find themselves only being able to pay the minimum payment each month. This means that this person, who always paid their balance in full in the past, will now be subject to paying interest on the remaining balance.
How To Make Sense Of Your Credit Card Interest Rate
According to Investopedia, interest is usually expressed as an annual percentage rate (APR). Simply put, your APR is your credit card’s yearly rate of interest. You are charged interest if you pay any amount less than the total balance on your statement. In essence, you will be paying interest on the remaining balance. There are a few factors that affect your interest rate.
- The Prime Rate: According to ReadyForZero, this is a baseline interest rate that changes over time based upon various economic elements.
- Your Credit Score: When you apply for a credit card, the financial institution will complete a credit check on you to determine if you are a good risk. The better your score, the lower your rate in most cases.
- Payment Behavior: If you do not pay your bills on time it is likely that your credit card provider will issue a late fee, and may increase your interest rate.
How Can You Improve Your Credit Card Interest Rate?
Above all, it is important to stay informed. Remember, you are entitled to get your credit report once each year from Equifax, Experian, and TransUnion for free. Knowing your credit score can help you monitor your score, and also help you to uncover any errors that could be affecting your score. It is also important to know how to read your credit card statement. There are great resources out there that can help you to better understand your credit card statement, by familiarizing you with terms that are commonly used on your statements. For a detailed look at a credit card statement from Mycreditunion.gov, click here. If you are currently holding a balance n a high interest credit card, think about transferring that balance to a Launch CU credit card. You may be surprised by how much money you can save in interest.
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