Before opening a credit card, it is important to review and understand the annual percentage rate (APR) offered on the card. Understanding the APR will ensure that you are able to monitor your credit card to ensure you are not being overcharged.

Identification

According to the Federal Reserve Board, the APR is "the interest rate you will pay if you carry over a balance, take out a cash advance, or transfer a balance from another card." The interest rate is applied against any of the balances held on your credit card.

Types

You may have several different APRs on your credit card. Most credit cards will charge a different APR for purchases, balance transfers and cash advances. Some cards will even apply a different APR to different levels of the outstanding balance. For example, they may charge 12 percent for balances of $1 to $500 and 17 percent for balances over $500.

Introductory APR

Most credit card companies will offer a low APR to encourage you to open a credit card account. This is called the "introductory APR" and it often becomes higher once your introductory period expires.

Considerations

Most credit cards will increase your APR if you make one of your credit card payments late. It is also important to regularly check the APR listed on your statement. It is not uncommon for your credit card company to raise a variable APR without informing you.

Benefits

If your credit card company offers a "fixed rate APR," the APR will not change often. The credit card company is required to inform you before changing your fixed rate APR.

Source:

The Federal Reserve Board: Choosing A Credit Card

Consolidated Credit Counseling Services: Understanding APR

Student Platinum: What is APR (Annual Percentage Rate)