How does APR work on credit cards?

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    Jordan Moore
    Jordan Moore

    Think of APR (Annual Percentage Rate) as the price tag for borrowing money on your credit card. 

    If you don’t pay off your full balance each month, the bank charges you interest based on that APR. For instance, if your APR is 20% and you have a $1,000 balance, you’re looking at paying about $200 in interest over a year if you don’t clear it. (You probably figured this out already, but your APR is the percent you’ll owe on an amount over a year, not each month.)

    The higher your APR the more you may end up paying in interest (if you’re not paying your card off in full each month). 

    Your credit score plays a big role in determining your APR. Generally, the better your score, the lower your APR. Why? Because lenders see you as less risky. It’s like getting a discount for being financially responsible.

    The good news is, you’re not stuck with a high APR forever. StellarFi helps you improve your credit score using the bills you already pay. Improving your score can boost your chances of scoring a lower APR in the future.

    Here are three other things to know about APR:

    Different rates: Different types of borrowing might have different APRs. You’ll have one rate for purchases, another for cash advances, and maybe even one for balance transfers. Cash advances and balance transfers often come with higher APRs.

    Watch out for changes: Most APRs are like moving targets—they can change over time, especially if they’re variable. They might be tied to outside factors like the prime rate, so if that goes up, your APR might follow suit.

    Avoiding extra costs: The best way to dodge extra costs is to pay off your balance in full every month by the due date. That way, you skip the interest charges altogether.

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StellarFinance, Inc. and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.

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