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.

Benefits

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.

Considerations

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.

Where to go for a Credit Card

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.

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