2. “How to Determine and Improve Your Home Affordability”

Sure, here is the text formatted for WordPress with heading tags and paragraph tags:

Understanding Credit Card APR: A Comprehensive Guide

At O1ne Mortgage, we prioritize educating our clients about consumer credit and finance. This article aims to provide an objective view to help you make informed decisions about credit card APRs. For any mortgage service needs, feel free to call us at 213-732-3074.

What Is Credit Card APR?

A credit card APR (Annual Percentage Rate) is the cost you incur when you carry a balance on your credit card. Expressed as a percentage, it helps you calculate the cost of borrowing money on a credit card and repaying it over time. As of May 2024, the average credit card APR was 22.76%, according to the Federal Reserve.

Types of Credit Card APRs

Credit cards apply different APRs depending on the type of transaction. Here are the main types:

• Purchase APR: This rate applies to purchases when you carry a balance from month to month.
• Balance Transfer APR: This rate applies to balances transferred from another credit card, often the same as the purchase APR.
• Cash Advance APR: This rate applies to cash withdrawn against the credit limit or cash equivalent transactions, typically higher than the purchase or balance transfer APR.
• Installment Plan APR: This rate applies to purchases you convert to a fixed installment plan, which some cards allow.
• Penalty APR: This rate applies to your balance if you make a late payment or your payment is returned by your bank.
• Promotional APR: A temporary low rate charged on specific types of balances, usually purchases or balance transfers, or both.

What Is a Good Credit Card APR?

A good credit card APR is generally one that falls below the nationwide average. Since the average credit card APR changes with the market, what’s considered a good APR also varies. A lower credit card APR is beneficial because you’ll pay less interest when you carry a balance.

How to Use APR to Calculate Monthly Credit Card Interest

Your credit card APR allows you to calculate the amount of interest you’ll pay on your credit card balance. Most issuers use either the average daily balance or daily balance method to calculate interest charges.

Average Daily Balance Interest Example

The average daily balance method calculates interest by averaging out your balance over the billing cycle.

Formula:

Credit Card Interest = Daily Rate x Average Daily Balance x Days in Billing Cycle

Daily Balance Interest Example

The daily balance method calculates and adds interest to your balance each day.

Formula:

Daily Interest = Balance x Daily Rate

How to Get a Lower Credit Card APR

A lower credit card APR makes it easier and less expensive to pay off a high credit card balance. Here are some tips:

• Raise your credit score: A high credit score increases your chances of getting a lower APR.
• Check other credit card offers: Compare your current rate to the APR of any offers you’ve recently received.
• Contact your card issuer to negotiate: With a good credit score and competitive offers, you can ask for a lower interest rate.
• Take advantage of a promotional APR: Move your balance to a 0% APR credit card for several interest-free months.

The Bottom Line

Credit card APR directly affects the cost you pay for carrying a credit card balance. Paying your balance in full is ideal for avoiding credit card interest. When that’s not possible, a credit card with a low APR is the next best option.

For any mortgage service needs, O1ne Mortgage is here to help. Call us at 213-732-3074 to speak with one of our expert loan officers today!