Understanding the Difference Between Variable and Fixed Rate Credit Cards

When you first get that new credit card, you probably get to enjoy a 0% introductory interest rate. But, after that introductory period is over, how are your finance charges determined? This is important question to ask because your APR may be fixed or variable, which can make a big difference in how much you have to fork over in finance charges.

As the name implied, fixed rate credit cards have a fixed APR. This means your APR will stay the same, regardless of the Prime Rate. This is an attractive feature if you have managed to find a credit card with a low interest rate. Don’t make the mistake of believing that your interest rate will never go up, though. Your credit card company does have the right to raise your interest rate, so long as it provides you with advance warning. Things such as making your payment late or going over your credit limit will provide the company with the perfect excuse to boost your rate, so be sure to make payments on time and to watch that limit.

A variable rate credit card is figured by adding a certain percentage on top of the Prime Rate. The rate can go up and down as often as the credit card company wants to and whenever it wants to. Unfortunately, variable rate credit cards tend to go up rather than down. So, if you choose to go with one of these cards, keep an eye on that interest rate to make sure your finance charges do not become outrageous.