Rate Trends

Credit Card Rates by Credit Grade

What is a Credit Card?

Though the answer may seem obvious, since you probably have several of these in your wallet, it is important to note that a credit card is a personal, revolving line of credit issued typically by a bank or credit union. Credit cards are not "charge cards" or "debit cards," the former requiring payment in full each month and the latter drawing straight from a personal account, usually a checking account.

How to Read the Average Rate Chart

Since a credit card is an unsecured revolving loan, credit card interest rates closely related to the user's credit score. Historically, an excellent credit score (720+) users could expect to pay the prime rates or a few points above. With the current credit crunch, rates may be higher than in the past. On the other end of the spectrum, bad credit interest rates can vary drastically and will often include many additional fees.

Note: If you do decide that now's a good time to get a credit card, it's very important to shop around. Check out our Credit Card Reviews and Recommendations; with over 130 cards to choose.

Not having to carry cash. No one wants to carry around large amounts of cash for the obvious safety reasons but it's also nice to not have to worry about finding an ATM when you're on the go. With a credit card, no matter what you need to buy, you always have exact change.
Carrying a balance. You can't always outright afford the big-ticket items you'd like to have or the emergencies that come your way. A credit card allows you to pay off those larger purchases (or a series of smaller ones) over time, making the impossible purchase possible.
Improving your credit. Assuming all of the terms and conditions of the card you carry are met on an ongoing basis, your credit rating should improve over time. There is a limit to how many cards you should probably carry (around six) but up until that number you are proving yourself to be a responsible credit holder.
Rewards. You won't earn air miles or free gas by writing checks everywhere you go, but you could earn those things and more by using a credit card that comes with a rewards program.

A credit card is a convenience worth having, but it can also be a headache and a detriment to your financial future if you do not abide by the terms and conditions or you max out your available credit.

Going over your credit limit, being late with a payment, or any number of other "defaults" can, in some cases, trigger what's known as rate re-pricing. Your interest rate could jump from as low as 0% APR to well above 30% APR, which obviously means carrying a balance would become a much more expensive proposition.
Your credit score can be adversely affected if you default on your terms and conditions, especially if there is a pattern of abuse. A lower credit score will close the door to some lending opportunities you may have had access to otherwise.
Though only paying the minimum payment is technically staying within the terms and conditions, doing so will cost you big-time in the long run. Credit card interest rates are generally higher than other loans and lines of credit and if your available credit to balance ratio gets too high that can also affect your credit score.

Make sure to read the terms and conditions very carefully to avoid entering into an agreement that is unfair or does not suit your spending habits.

Benefits

These days it seems you can get a card from just about anywhere; banks, airlines, even through your college alumni association. So how do you choose? Well, getting one from your bank or credit union might be a good idea, if the rates and terms are good, since you'll like have easy-access to online banking, which makes transferring a payment from your checking or savings account to your credit card a breeze. But again, shop around for the best deal just like you would for anything else. Credit Karma's Credit Card Review is a great place to start.

Comments

(5 Total Comments)

It's unfortunate that the credit card companies are raising rates on people with very good credit. I suspect this has a lot to do with that law that is going into affect in Feb 2010...screw over consumers while you can. The credit card companies contributed heavily to the economic turmoil and they are still driven by greed."

eric77 at 5:49 pm Nov 30

Am I the only one feeling poached by credit card companies? I'm only 23, so my oldest account is only 4.5 years, but I've paid it in full every single month. In the last year, it's shot up from 13.99% APR to 23.99%! I've still never, ever carried a balance. I don't intend to either. But on the off chance that I needed to sometime, I think it sucks that they're treating me like they can just take exorbitant amounts of money from me!"

killerteacup at 2:01 pm Nov 16

If your credit card company won't lower your rate look into credit unions and local banks who have lower rates. Don't close your current card but try and patronize a company that isn't trying to take advantage of you."

Ryoung2 at 5:26 am Jan 9

it is very important to to establish a "good" credit history and prove that you are a good credit risk/the best way to go about it i think is to start with a small revolving charge account with no annual fees such as gas ,department store/ jcpenny,walmart,sears,chevron all cards i have with no annual fees/and remember that if you don't use the credit line it remains their for you when you need it.just remember that you are making your credit history so make it "good" credit history/i never roll over or finance more than $50 on any revolving account no matter the credit limit.i spend only what i can pay for,not all my credit limit.this is very good thing to follow."

jonnyapplese at 5:22 am Jun 11