What Determines Credit Card APRs?

Understanding Credit Card APRs

Although credit cards often provide the easiest means to build small business credit, credit card APRs differ considerably from card to card, during introductory or promotional periods, and even within a single credit card account. The initial APR on a credit card is usually determined by an individual or business’s credit score. If the card has a variable rate, the APR is likely based on the Prime Rate, a benchmark from the Wall Street Journal’s bank survey, that determines the lowest rate of interest available for commercial loans.

In general, a lender cannot raise the APR on a credit card within the first year, as long as the account remains in good standing, unless the terms of an introductory or promotional rate have been specified beforehand. It is therefore important to ascertain whether the initial APR is an introductory rate that will go up after a fixed period of time. After the first year, most lenders give 45 days’ notice before raising the APR on a credit card.

Variable rates and introductory offers aside, APRs can also change based on your monthly payment history, and the amount of activity on the card. Keeping your account in good standing will give you a better chance of maintaining a low APR on your card. Using the card for different purposes can also generate different charges. The APR on purchases, for example, is often different from the APR on cash advances and balance transfers. Before you make an ATM withdrawal with your credit card, make sure you know what the relevant charges will be.

All lenders are required by law to tell you the APR on your loan. Credit cards are no different. If you’re considering a new card or paying off debt on a current card, you can use a calculator like this one, to determine your best course of action. Always be mindful of taking on more debt than you can afford. You do not want to risk the long term prospects of your business.

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