A credit card with no interest is great, but the truth is that APRs come in many flavors including high, low, fixed and variable. Retail store credit cards take the prize for the highest with some current APRs running as much as 28.99 percent. A decent bank credit card runs around 12.99 percent. The one I’m paying off right now has a variable APR of 14.99 percent on purchases and a whopping 24.99 percent on cash advances. And the Navy Federal Credit Union currently offers a card with a variable APR of 8.99 percent.
Let’s talk about variable rates and what that means. Most credit cards have a variable rate for purchases. In the case of Navy Federal Credit Union, variable means the rate can change monthly. With some credit card companies the rate may change either monthly or quarterly. And without notice. What triggers this rate change?
A variable-rate APR usually changes when the index interest rate changes, like the prime rate published in the Wall Street Journal. The prime rate moves up and down according to the interest rate set by the Federal Reserve. When your newspaper says the Feds have raised interest rates that means your variable APR is going up, too.
If you read the fine print or “terms and conditions” for your credit card, you’ll usually find the variable rate expressed as an index plus a margin. So if it says, “Index + 12.99 percent” and your index is the prime rate and that is 4 percent, your card’s interest would be 16.99 percent.
Most banks use the average prime rate which has been between 6-10 percent for a number of years now. If you sense the Prime Rate is going down, you’ll want to have a variable-rate APR card in your arsenal.
Fixed-rate credit cards, ones with rates that don’t fluctuate with the prime rate, exist, but they are difficult to find. My friend, Beverly Harzog says in her credit card blog (http://www.beverlyharzog.com/my-blog/), that you rarely see cards with ongoing fixed rates. You’re more likely to find them as introductory APRs with an ending date. So you may have a credit card with no interest, but will that change? And how credit card interest is charged can change too – even grace periods are not guaranteed, so be sure you read the fine print.
Even a fixed APR can change if the issuer notifies you 45 days in advance. Before the Credit CARD of 2009, banks only had to give you a 15-day notice. Now it’s a more sensible 45 days. Also, the higher rate only applies to transactions made after you get the notice. Even if you find a fixed rate card, you might not qualify for it.
Even though you see an ad that says a credit card has an APR of 7.99 or 8.99 percent, that doesn’t mean you’ll get that rate. Joe, your neighbor up the street with the Ferrari might, but you may not. You’re assigned a rate according to your credit score. A low credit score almost always means a higher APR.
Tip: Visit Annual credit report and get your free credit report before wasting time applying for a credit card that may be beyond your reach.
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