The average credit card interest rate as of August 2023 is 21.19%, per the Federal Reserve (rates updated seasonally). That’s not great for customers when just a few years ago, that statistic was an incredible 6.97% lower.
If you intend to open a credit card, you should be fully confident that you won’t be carrying a balance. As long as you pay off your credit card monthly, interest rates are virtually meaningless. Still, it’s wise to do your part to secure the lowest interest rate possible—just in case you unexpectedly find yourself floating money on your card month-to-month.
By maintaining a good credit score, you’ve got a good shot at getting a lower-than-average interest rate on cards with (comparatively) low APR and valuable welcome bonuses.
Average credit card interest rates: 2018–2023
There’s been a steady increase in interest rates over the past several years—and a big leap between 2022 and Q3 of 2023. In other words, there’s never been a worse time to carry a balance on your credit card.
“Over time, [building credit] can save you a lot of money on things like mortgages or car loans,” says Matthew Goldman, founder of consulting firm Totavi, LLC. “[But] using credit cards to actually borrow money is very expensive—and should be done very sparingly.” That is, you should strive never to use a credit card to buy something you don’t have the money for. If you can’t afford something now, don’t swipe your card.
View this interactive chart on Fortune.com
How are credit card interest rates set?
When you examine a credit card’s interest rates, you’ll often see a wide range accompanied by phrases similar to the following:
- “These APRs vary with the market based on the Prime Rate.”
- “Based on your creditworthiness...”
These tell you what you need to know about how credit card interest rates are determined.
Issuers use the current prime rate (the interest rate lenders typically give their absolute best customers) as a baseline. They then add extra percentage points on top of that. For example, at the time of publication the Chase Sapphire Preferred® Card terms state: “Variable APRs are based on the 8.50% Prime Rate as of 8/1/2023…We add 12.99% to 19.99% to the Prime Rate to determine the Purchase…APR.”
Next, the bank will examine your credit to decide how hazardous of a borrower you are. The riskier your past (due to previously missed payments, bankruptcies, delinquencies, and so on), the closer you’ll be to the top of the variable APR range. The bank doesn’t want to lose money on you, and it’ll take steps to ensure that it makes as much money as possible from a high-risk customer. Rewards credit cards and those created for subprime customers also tend to carry above-average interest rates.
It’s worth noting that for individuals, APR is virtually meaningless if you pay your bills on time each month. But those with small business credit cards may want to be extra mindful of these rates, depending on their business model.
“You have to spend money to make money,” says Brett Sussman, the head of marketing and sales at Business Blueprint & Banking at American Express. He emphasizes that the cash conversion cycle of a small business is often longer than for consumers. “[Say] a small business owner gets a very big order upfront, and they have to buy all this raw material and fabric [but] they don’t have that money, and so they may want to put it on their credit card and pay it off when they get repaid…That could be 60 or 90 days later.”
How to improve your chances for better credit card rates
If you’ve got a good credit score built through positive credit habits, you’re likely to receive a lower APR than someone whose score has been marred by missed payments and high account balances. Here are a few things you can do to ensure your credit is healthy—and your chances for better credit card rates are high.
Keep an eye on your credit report
Knowing is half the battle. See if you can pinpoint any weaknesses in your credit profile that may prevent your “good” credit from becoming “excellent.” Factors like late payments and high credit utilization you should already be aware of—but you may find things like fraudulent activity or various errors on your credit report.
You can get one free credit report annually by heading to AnnualCreditReport.com. Even better, you can receive a weekly credit report from Equifax, Experian, and TransUnion until December 31, 2023. Review your credit report to learn from your mistakes, and dispute any inaccuracies with the credit bureaus.
Keep your credit utilization low
Credit utilization (or “amounts owed”) is the amount of available credit you use. For example, if you’ve got $40,000 in credit spread over five credit cards and a total debt of $10,000, your credit utilization ratio is 25% ($10,000 balance / $40,000 in available credit).
A good rule of thumb is to keep your amounts owed below 30%. Prevailing wisdom says that a higher utilization than that can cause your credit score to suffer. And because credit utilization accounts for 30% of your overall credit score, it’s vital to keep your balances low.
Look for other ways to boost your credit score
The most meaningful step you can take to foster a high credit score is to pay your bills on time. Payment history makes up 35% of your credit score, so any delinquencies are the equivalent of a claymore into the heart of your credit.
Another important step you can take to build and improve your credit score is to avoid applying for lots of credit cards in a short period of time. When your credit is sustaining a lot of hard credit inquiries, it raises red flags with lenders. Understandably, they may assume that you’re scrambling for credit.
You can also explore credit-building tools, such as Experian Credit Boost, to inject some life into your credit profile. Experian Credit Boost is a free tool that examines activity that isn’t necessarily credit-related to raise your Experian credit score. For example, if you faithfully pay your phone bill, utility bills, Netflix subscription, or internet bill, Experian will add them to your file as a sign of responsible financial management. Experian says users see an average increase of 13 points with this tool, however, it will not impact your credit score as reported by TransUnion or Equifax.
Track your score improvement
It’s responsible to check your credit score regularly as a form of quality control. With a quick glance at your credit score every week or so, you should be able to quickly discern if there’s something wrong (such as fraud, a late payment, or similar).
There are several ways to check your credit score, including:
- Check your credit card’s online account. Many credit cards offer free credit score monitoring as a benefit. You may have to enroll to see your score.
- Use a website that soft-pulls your credit. Several credit monitoring websites offer a free credit score every week or so (such as Credit Sesame).
- Enroll in a subscription from a credit bureau. Equifax, Experian, and TransUnion all offer services that allow you to receive your credit score periodically.
- Ask your bank. Some banks will give you access to your credit score. You may see it every time you enter your online account—and you can sometimes even ask a customer service representative to check for you.
The takeaway
The average credit card interest rates in America are at an all-time high, which is no surprise.. Banks are not philanthropists; they’re a business, and they’re trying to make money.
If you have a tendency to carry a balance on your credit card rather than paying it off each month, you may be better off without one. It can be extremely difficult to dig yourself out of a debt hole with the current state of credit card APR.
