Understanding How Credit Card Interest Rate Works

The interest rate on a credit card is an inevitability all consumers accept. But how much you pay because of that credit card interest rate is largely under your control. A financial institution determines your interest rate based on what kind of a risk they believe you to be. Understanding how to become a low risk consumer is the quickest way to get the best interest rate on your credit card.[br]

The interest rate on a credit card is an inevitability all consumers accept. But how much you pay because of that credit card interest rate is largely under your control. A financial institution determines your interest rate based on what kind of a risk they believe you to be. Understanding how to become a low risk consumer is the quickest way to get the best interest rate on your credit card.[br]

The credit history is the largest factor in the determination of your risk and your credit card interest rate. When you fill out any credit application, the first thing you are asked for is you social security number; or other identification if you live outside the United States. The reason they want to know this is because they want to look at your credit history to see what kind of a consumer you have been.

They want to know everything from how you pay your utility bills to if you have defaulted on a loan in the past. If you have a poor credit history or a lot of liabilities that never got paid then you can bet that your interest rate will be very high. If your credit history shows that you have always paid your obligations on time, then your interest rate could be among the most competitive on the market.[br]

Along with your credit history, a lender wants to know how much money you make. They may also ask how long you have been at your current job and address. This is important factor in consideration to your creditworthiness and your ability to repay the balance on the credit card.  This is a large factor when determining whether a consumer should get a low credit card interest rate.

If you do not make enough to adequately repay the balance at any given time then you will be considered a higher risk. How long you have been at your job is a consideration since it shows a potential commitment to that company. If you have 10 years at your job then a lender is more likely to believe that you will live up to your commitment to them as well.

Ultimately once all of the factors have been considered, including the type of card and current market, you will be presented your new interest rate.

 

Find out more about Credit Card Interest Rates.