Credit glossary
Annual percentage rate (APR)
The yearly interest rate on a credit card or loan, and the number to compare when deciding which balance costs you the most.
The CFPB describes a card's interest rate as the price you pay for borrowing, typically stated as a yearly rate called the annual percentage rate. On most cards you can avoid interest on purchases by paying the full statement balance by the due date. Carry a balance and the APR starts to matter every month. One card can carry several APRs at once, such as a promotional rate on a transferred balance and a regular rate on purchases.
APR has no direct line into your credit score. The bureaus don't even receive it: the CFPB found Metro 2 has no field for interest rates. It matters for your wallet and your payoff order. Under Regulation Z, card payments above the minimum must go first to the balance with the highest APR, and the avalanche method targets the highest rate first because it costs the least interest.
Guides that go deeper
- Debt snowball vs. avalanche: the real dollar difference, worked outWe ran four real-looking debts through both payoff methods month by month. Avalanche saved $167 here, snowball won its first payoff 9 months sooner.
- Balance transfers and your credit: the score side and the cost sideA balance transfer moves debt, it doesn't shrink it. What a new transfer card does to inquiries, utilization and account age, plus the fee and payoff math.
Sources
- What is a credit card interest rate? What does APR mean?, Consumer Financial Protection Bureau
- 12 CFR 1026.53, Allocation of payments, eCFR
- Key Dimensions and Processes in the U.S. Credit Reporting System (December 2012), Consumer Financial Protection Bureau
This is education, not legal or financial advice. Spot an error? Tell us and we'll fix it.