Understanding Low APR credit cards
What is a Low APR credit card?
Low rate APR credit cards are just that, cards with a low APR as standard not just for an introductory period.
There will be no unsuspecting hike in interest rates after an introductory period with low APR credit cards allowing you to keep on top of your finances without having a nasty surprise a few months down the line. The average APR on a low rate credit card is around 10% compared with 18% on some cards after the introductory period is over. That can make a big difference to the amount you will have to pay back.
Is a Low APR Credit Card right for me?
Having one low standard rate could help you manage your finances more easily, as you dont have to worry about how much using your card in different ways will cost you. So if you don't want to worry about changing cards to get a new deal after your 0% period ends this could be the type of card to consider.
Credit Card Providers with simple low standard rate
Some providers which offer cards with a low APR are Barclaycard, Sainsbury's and Lloyds TSB.
Credit Profile for a low rate APR credit card
What type of credit score do I need to get a low rate APR card?
Credit cards with low rates are aimed towards those with strong credit profiles,
How do credit card issuers use my credit score?
Credit card companies will use a person’s credit profile when that person applies for a card, and will also use the information in helping them manage the credit limits of existing customers. Credit card issuers have two main goals when it comes to assessing a customer’s credit profile, both in relation to new customers applying and existing customers. Firstly, they want to ensure they are lending responsibly, so customers don’t end up with debts that they are unable to afford. And secondly, they want to ensure they are lending to customers who are reliable and therefore likely to repay their borrowing. The credit profile provides information that can help the issuer in making that assessment.
How can I improve my credit score?
Customers who haven’t been exposed to much credit will have what is known as a ‘thin’ file. This basically means that as there isn’t a great deal of history on how you handle credit, lenders may have reservations about offering you market leading products. In this case the best option would be to try and use a credit building product, such as a credit card designed for customers with a low credit score. If you can use the card in a sensible way in the eyes of the issuer, always making sure you make the required payments on time for example, this will improve your profile and give you a better chance of being accepted for further credit in the future.
Customers who have had difficulties with credit in the past could look for a bad credit history credit card. If you use this sensibly and ensure you manage the account well – making payments on time and staying within your credit limit will give you a better chance of being accepted for further credit, on a wider range of products, in the future.
Glossary of terms
Available credit
Your current credit limit minus your current outstanding balance.
Balance Transfer
This is when you move an outstanding balance from one card onto another.
Balance Transfer Fee
Sometimes also called a Balance Transfer Handling Fee. This is a charge that is applied if you move a balance onto your new card. It is usually calculated as a percentage of the balance you wish to transfer- typically it's around 3%. So, for example, transferring a £2,000 balance onto your new card with a balance transfer handling fee of 3% will incur a charge of £60, which is added to the balance on the card.
Cash advances
You obtain a cash advance by using your card to draw cash. Cash advances will invariably attract interest from the moment they are made, so there is no 'interest free' grace period.
Cash advance fee
You will also be charged for using your card to draw cash. The charge might be made as a flat-rate fee on each withdrawal or taken as a percentage of the amount of cash advanced.
Cash Advance rate
This is the rate of interest attracted by your cash advance. As noted above, interest is invariably attracted from the moment it is made and the rate of interest for this facility could be higher than the card provider’s standard rate on regular purchases.
Issuer/Provider
This is the company who process payments made with the card. The three main issuers are Mastercard, VISA and American Express.
Credit Limit
This is the maximum amount that your provider will allow as credit i.e. a limit that cannot be exceeded as the balance owing on your credit card.
Credit Rating
A scoring system is used by lenders to determine how credit worthy each customer is.
Minimum Payment
This is the minimum amount you must pay in any one month in order to meet your credit repayment agreement with the company. The amount of the minimum payment is usually calculated as 2% or 3% of the outstanding debit balance.
Outstanding Balance
Any money owed on your account/card.
Purchases
This is where you pay for goods or services using your card – it doesn’t include things like cash withdrawals, cash advances or money transfers.
Representative APR
APR stands for Annual Percentage Rate and is the effective rate of interest, over the year, which reflects all the costs of the credit, including interest charges and other fees (such as an initial arrangement fee and any annual charge). It is 'representative' as 51% of those accepted for the card have to be offered the advertised APR.
Representative Example
New regulations that came into force on the 1st February 2011 now mean that every credit account advertisement has to include a representative example of the total cost of the credit. The example includes all the required 'standard information', including the representative APR, an example credit limit and the rate of interest on purchases after any introductory period has expired.