A 29.99% card APR is too high, even with bad credit (2024)
Kevin Weeks
Dear Credit Wise, I just got a letter in the mail for a MasterCard, but the APR is 29.99 percent. I know that is too high, but my credit is bad. I'm trying to build my credit back up so I'm also trying to get some advice. Is that good or bad? -- Vera
Dear Vera, It is an unfortunate truth that one can very quickly do major damage to one's credit score. However, the reverse is true when trying to build credit back up. It takes time and all too often it feels like you just don't have that time. I know it is tempting for you to take this offer since you are in the process of building your credit. However, you are correct in your statement that 29.99 percent is too high -- it's way too high. It's like being stuck between a rock and a hard place trying to figure out what to do.
The only circ*mstance in which I would be comfortable with you accepting this card would be if you used it sparingly and paid the balance in full each month. This is risky, though. You could be more inclined to buy something that you otherwise would not, if you didn't have the credit available.
My advice is to hold off on accepting this offer. There are far better options for establishing credit than taking on a card with an onerous rate. One of those options might be a very modest loan with a bank or credit union. These loans are usually for relatively small amounts, and competitive rates are offered by many small banks and credit unions. This is a great way to establish a different type of credit, which is good for your credit score.
If you don't believe you can qualify for a small loan, you could also look into a secured credit card. A secured card is backed by your own money rather than your credit history, which makes it easier to qualify. This does not mean that you won't pay fees and interest with a secured card, because you will. I don't believe you will be paying 29.99 percent, though.
Never forget, though, that your goal must be to pay the debt in full each month so the interest rate is a nonfactor, regardless of what card you ultimately obtain. If, as a last resort, you must use the card and know you cannot pay it off in full the following month, look for the lowest interest rate you can get.
Shop around to find a card that offers you a better rate and also be sure that any card you ultimately choose will be reporting to the credit bureaus. Once you have found the right card, you will want to use your card responsibly. Keep your credit utilization as low as possible -- shoot for less than 20 percent of your spending limit. Use your card periodically and pay off your balance each month. Establish a method for paying your bill on time and in full every month. This is the single most important thing for you -- or for anyone -- to do when trying to improve a credit score.
This is true for all of your bills. Your mortgage company or landlord very likely report to the credit bureaus, as do some utility companies, so you want to make sure those bills are paid promptly as well. You must pay all your bills, on time, all the time. This will, over a period of time, slowly improve your credit score. You will also be in much better shape overall financially.
Penalty APRs are part of why credit card overspending can be so dangerous, as they may reach higher than 29.99% when a payment is at least 60 days late. Interest rates this high would be unthinkable in most other common lending contexts.
Factors that increase your APR may include federal rate increases or a drop in your credit score. By identifying changes to your APR and understanding the actions that led to your increased rate, you can take steps that may help reduce your interest charges in the future.
The annual percentage rate (APR) is the cost of borrowing on a credit card. It refers to the yearly interest rate you'll pay if you carry a balance, plus any fees associated with the card. APR often varies by card.
While it's easy to say that you should always look for credit cards that offer APRs at or below the national average, getting a good purchase APR will depend on your credit score. People with below-average credit scores tend to be offered higher interest rates than people with good or excellent credit.
Generally, an APR below 21% is relatively low. Anything over 24% is more expensive. If you pay off your credit card balance in full every month, the APR won't be as important as you won't be paying interest. But if you forget and the APR is high, the interest charges will quickly rack up.
Improve your credit score. An improvement in your credit score is critical if you want to start reducing the APR you're being offered by lenders on credit card applications. ...
While lenders have some options when a borrower can't pay, they may ultimately need to sell the debt to a collection agency for a fraction of its value or write off the debt entirely. To safeguard themselves against such losses, lenders typically charge higher interest rates to borrowers with lower credit scores.
Since credit is effectively a measure of how trustworthy you are as a borrower, the interest rates for people with no credit or bad credit are typically higher. Lenders use higher interest rates as a way to protect themselves from the risk when the people they lend to have a history of late payments.
Your credit card's annual percentage rate (APR) is your credit card's interest rate. If you carry a balance on your credit card, you'll need to pay interest until it's paid off in full. If you pay off your monthly statement balance in full and on time, you likely won't need to pay interest on purchases.
If you'd like to avoid paying interest on your credit card, you have two options. You can pay off your balance before your grace period ends, or you can apply for a credit card that offers a 0 percent intro APR on purchases for a time.
APR – or Annual Percentage Rate – refers to the total cost of your borrowing for a year. Importantly, it includes the standard fees and interest you'll have to pay.
A 30% APR is reasonable for personal loans only if you have bad credit. It's far from the lowest rate you can get with a higher credit score. Personal loan APRs tend to range from around 4% to 36%. A 30% APR is not good for credit cards.
If you have a lower credit score, it can cause you to have higher APRs. According to the Federal Reserve, the average APR for a credit card was 14.65%. APRs over 20% are considered high but they may be the only APR available to you depending on your credit score.
A good credit card APR is a rate that's at or below the national average, which currently sits above 20 percent. While there are credit cards with APRs below 10 percent, they are most often found at credit unions or small local banks. If you don't have good credit, you're likely to receive a higher credit card APR.
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