Factors That Determine Credit Card Interest Rates

Factors That Determine Credit Card Interest Rates

Interest rates can come in all sizes, but for credit cards they mostly fall into one of three kinds: variable rate, fixed rate and promotional rate. Many firms issue cards tied to revolving credit. Card holders are permitted to carry a balance on their accounts at the end of every billing cycle. Users who carry a balance will be charged interest in their next bill.
There are four main credit card firms — MasterCard, Visa, American Express and Discover — and several aspects that are considered while determining interest rates on each of their cards.
Prevailing interest rates – also called as “prime rates,” these offer the basis for most credit card rates. Prime rates were flat for years, but up surged 0.25% in the end of 2015 and credit card interest rates also raised with them.
User’s credit history and credit card provider’s risk assessment – Credit card firms will look at the applicants credit report and credit score to make them define the interest rate you will be charged. High credit scores are directly proportional to lower interest rates and vice-versa.
Diverse rates apply – The prevalent term for calculating credit card interest is APR (Annual Percentage Rate), but a single card may have quite a few APRs attached to it. There could be various APRs applied to cash advances, promotion rates, purchases, balance transfers and others. Some cards have APRs that vary half yearly or yearly. Most have variable APRs and some are fixed.
Promotional offers – Credit Card providers will invite consumers with offers of zero-percent interest, at times for more than one year. When the promotional period finishes, rates go up.
Payment history – If you generally delay your payments or fail to pay in total, credit card providers will increase your interest rates, at times radically.

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