When you compare credit card offers, APR is the most important feature capturing your attention. It helps calculate a cost of borrowing and therefore determine the best deal. Some credit cards come with fixed APR - it remains nearly the same for the whole life of your account. Other credit cards have a variable rate - the APR fluctuates depending on the Prime Rate or LABOR.
Besides the ways of calculations, there are other reasons which may cause your APR change. Credit companies can raise or lower your APR according to your credit history. Even fixed APR is subject to vary due to your creditworthiness.
If you have a long-term loan, make on-time payments and do not max out a credit line, you have good chances to lower your interest rates. Just call your credit company and negotiate a better deal. If you have proved to be a reliable and trustworthy customer, you credit card issuer is likely to offer you more profitable terms.
Pay a close attention to the reasons that can cause the increase of your interest rate. Your low APR can go up due to exceeding your credit line or having too much debt on your credit cards. Try to keep the ratio between your credit card balances and the total available credit less than 30%.
If your payment is received late or you fail to pay at least the minimum due, you can be switched to a default APR which is actually much higher. For example, if your current interest rate is 9% and you go delinquent, credit card issuer can raise your APR up to 29.99%. Look for information on the credit card application and in the credit card agreement to see what your default APR is.
Delinquency is a serious negative item on a credit report. It can lead to increasing APR on all your outstanding balances. This practice is known as universal default. Credit card issuers find out the level of your default risk from your experience with current accounts. They review your credit report on a regular basis and imply default APR if you fail to make a payment on a loan with another lender or your credit history has been affected with other negative changes.
Rather than having these charges apply to you, exercise a little caution and financial discipline to enjoy cash back or points reward programs and other benefits of credit cards. Reckless and ill-considered financial management can change your credit card terms for worse. It is possible to come back to your regular APR, but it can take a lot of time, patience and responsibility.
Credit cards can be a very beneficial financial tool if you use them wisely. Now you know how to avoid possible mistakes and keep your APR low. Smart financial decisions will help you build a good credit history that becomes your best reference for credit card issuers.