The interest rate that is issued to a person for the use of a credit card will depend on a number of different factors that are used to calculate the amount of risk a person presents when borrowing. These calculations are generally standardized across the board, meaning that every person has their personal information plugged into the same calculation and the interest rate offered is solely based on the calculation of their personal risk. Learning the factors that go into calculating an interest rate can help you by showing you how to keep your borrowing risk low and your interest rates lower.
Your Credit History
Your credit history is a very important part of the calculation of the interest rates you will receive for the credit cards you apply for. Your credit history details any times you have made a late payment or missed a payment, indicating of your level of responsibility, your repayment track record, and how much of a credit risk you will be. If the credit card company reviews your credit history and determines that you may be a default risk, you will be charged a higher interest rate than someone that does not appear to be a credit risk on their credit history. To keep your interest rates low, pay all of your bills on time and avoid having negative information placed in your credit history.
Amount Of Time Using Credit
The length of time that you have owned credit cards or other credit accounts may also affect your credit card interest rate. Long term customers of certain credit card companies are often rewarded with the lowering of the interest rates on credit cards that they have held for a significant period of time. The credit card company may conduct a routine review of your credit card account and decide to lower your interest rate or you can call the credit card company to request that your interest rate be lowered based on your payment history with the company. This technique is only beneficial if your account is in good standing and you have been making all of the necessary payments needed on time.
Amount of Current Credit Being Used
The amount of your available credit that you are using at the time of opening a new credit card account is another factor that may affect the interest rate that you are offered for the credit card. Anyone using more than 30% of their available credit will be considered a credit risk and will be offered a high interest rate. Paying down your current debt levels before applying for more credit can save you hundreds of dollars in interest payments each year due to qualifying for a lower interest rate.