Determining what interest rate is charged for a particular individual’s credit card involves a calculation that includes a number of different factors. These factors can cause a person’s credit score to increase or decrease, causing an opposite movement in the interest rate that is offered to the individual for credit cards and loans. Here are the factors that affect the interest rate of the credit card the most.
Credit Reporting
The information that is reported to the credit reporting bureaus about accounts that are in your name will greatly affect your credit score and the interest rate that you are charged for a credit card. Information generally reported to the credit reporting bureaus include new credit accounts opened, late payments to creditors and utilities, and the amount of your available credit being used. This shows the credit card company how much of a financial risk you will be to their company and higher risks are charged higher interest rates for credit cards.
History Of Credit Accounts
The length of time that you have had personal credit accounts will also affect the interest rate charged by the companies that issue credit cards. Individuals that have a long history of acquiring bank accounts, car loans, and credit cards will be offered a lower interest rate on new credit cards because they have established their credit and a payment history. Others may be charged a higher interest rate for their credit card until they have established an acceptable credit history length, at which time the account will be reviewed and the interest rate may be lowered.
Available Credit Percentage
The amount of previously issued credit currently being used is another factor that will influence the interest rate offered to a particular person for a new credit card account. If more than 50% of your currently available credit is being used at the time a new credit card account is being opened, the company issuing the credit card may decide that you are a higher credit risk than your credit score indicated and charge you a higher interest rate for the new credit card account.
Understanding how interest rates for credit cards are determined can help you ensure that you qualify for the lowest interest rate possible for new credit card accounts. Keeping these factors in mind and taking some preventative measures to ensure that your credit score remains high and your credit history remains unblemished will save you hundreds of dollars in interest payments on your credit card accounts.