Your Credit Card's Ongoing APR Shouldn't Matter


When shopping for a?charge card, many?people search for?a card with a reasonably low annual percentage rate. The main reason: A low APR means they’ll pay less in interest when they carry credit debt. The U.S Fed?estimates that credit cards charged?a typical 11.98% interest on balances?within the first quarter of 2015, meaning holding an account balance monthly can add up to?a substantial added expense.

But should you pay your bill in full, the APR?shouldn’t matter. Here’s why not carrying?a balance is the best choice, no matter your APR.

You have to pay interest

The most tangible?help to paying off your credit card bill entirely each month?is avoiding interest. Paying interest rates are a widely accepted necessity?when financing?larger purchases like?automobiles and homes, but doing so for smaller purchases on charge cards is preventable and should be ignored. This isn’t as hard because it sounds. It always requires paying more?attention to your spending habits.

For starters, don’t save money than you can?afford. Sometimes you’ll?face emergencies where?credit cards may be the easiest and maybe only way to pay.?But some credit balances grow for?simple insufficient attention.

Designing a financial budget around your spending categories is an easy method to keep track of your spending. Holding you to ultimately a set amount on some types of expenses?can temper your spending habits. Being an added reminder, you can setup balance alerts through your credit card.

? MORE: How is charge card interest calculated?

You lose the benefit of rewards

Carrying an account balance monthly usually?outweighs any points, miles or cash back earned from spending on a rewards credit card.

When choosing a charge card, it’s common to take rewards and bonus offerings into account. Finding a rewards card that matches your lifestyle can save you money?on purchases?travel, groceries and gas.

But paying interest on a balance can quickly wipe out any rewards you may have tallied up. For instance, if you spend $3,000 on travel with?a card that earns 2% cash back for that category (earning $60), carrying a balance just for a couple of months at a 20% APR eliminates those rewards earnings. If you repay balance in full each month, those rewards?won’t be wasted.

You?can hurt your credit score

Not?paying down balance?can put?your credit in danger. A higher credit card balance may influence your?credit utilization ratio,?which?represents?30% of the FICO score. Two components constitute?your general credit utilization ratio:

  1. The ratio?of credit utilized on a person?line of credit?to total credit on that individual credit line
  2. The ratio of total credit in use on all lines of credit to total credit available

In both cases, it’s advocated you retain your credit utilization ratio below 30%. Whenever your credit utilization ratio?increases above that much cla, your credit score usually decreases. This number is?calculated and reported towards the credit bureaus monthly, but the day can differ from issuer to issuer. By calling your issuer’s customer support line, discovering which day they report, and paying your balance before this date, you can prevent a higher utilization ratio?from dampening your score.

The main point here: You won’t need to pay charge card interest should you don’t carry a balance. Paying off?balance in full each month helps you save money and contributes to your general financial health.