Understanding Fixed-Rate and Variable-Rate Credit Cards

At O1ne Mortgage, we prioritize consumer credit and finance education. We aim to provide you with the best information to help you make informed decisions about your financial future. If you have any mortgage service needs, feel free to call us at 213-732-3074. Our team is here to assist you!

Is a Credit Card Variable or Fixed Rate?

Credit cards can have either a variable or a fixed interest rate. However, most credit cards come with a variable annual percentage rate (APR). This means the interest rate can fluctuate from month to month, affecting the interest accrued on your purchases, balance transfers, or cash advances, as well as your monthly minimum payment. While fixed-rate cards are available, they are less common and may require some effort to find.

Types of APRs on Credit Cards

Many credit cards feature three separate APRs:

• Purchase APR: This is the interest applied to your purchases. Most credit cards offer a grace period, meaning your purchases won’t accrue interest if you pay your balance in full every month. If you carry a balance, the revolved amount and new purchases could accrue interest daily.
• Balance Transfer APR: This interest rate applies to balances transferred to the credit card. It is often the same as the card’s purchase APR. Some credit cards offer promotional rates that temporarily lower the balance transfer APR, sometimes to an introductory 0% APR. Be sure to review the terms to see if purchases will accrue interest during the promotional period.
• Cash Advance APR: This rate applies to cash advances, such as withdrawing money from an ATM with your credit card or purchasing cash-like assets. This APR is usually higher than the purchase or balance transfer APR, and interest generally starts to accrue immediately, even if you pay your balance in full every month.

All these APRs can be either variable or fixed, depending on the card.

Fixed-Rate Credit Cards

Fixed-rate credit cards are available, though they are less common and often found through smaller banks and credit unions. These cards typically offer:

• Low APR: Many fixed-rate cards have a lower APR than the lowest starting APR on variable APR cards. Some also offer promotional APRs, such as a temporarily lower or 0% APR for purchases or balance transfers.
• Fewer Fees: Fixed-rate cards from credit unions and smaller banks may have fewer and lower fees, such as no balance transfer or cash advance fees.
• Fewer Rewards and Benefits: These cards might not be part of large rewards programs or offer the same insurance and cardholder protections as cards from larger issuers.

Consider these pros and cons to determine if opening a fixed-rate card with a local bank or credit union is a good idea for you.

Fixed Rates Can Still Change

While fixed-rate cards can help you avoid surprise rate increases on your existing balance, the card issuer can still change your card’s interest rate under certain circumstances:

• After the First Year: Card issuers usually can’t change the account’s APR during your first year with the card.
• With Notice: After the first year, the card issuer can change your rate if it gives you at least 45 days’ notice. The new rate will only apply to transactions that occurred 14 or more days after the notice.
• After Promotions End: The interest rate could change if you have a promotional rate that expires, even during the first year.
• If You Miss Payments: The card issuer could apply a higher penalty APR to your existing and future transactions if your bill is 60 or more days past due.

Variable-Rate Credit Cards

Variable-rate credit cards are much more common, and most major card issuers exclusively offer variable-rate cards. While a variable rate isn’t necessarily a bad thing, it’s important to be aware of the pros and cons:

• Many Options Available: Since variable rates are the norm, you can choose from a wide variety of credit cards, including rewards, airline, and hotel cards.
• Choose Your Rewards and Fees: If your credit score is high enough, you may qualify for many credit cards and can choose one with a rewards program, fees, and cardholder benefits that align with your needs.
• Rates Can Change Without Notice: A credit card’s variable rate is made up of a fixed interest rate plus a variable rate that changes based on a benchmark rate, such as the prime rate. If the benchmark rate changes, the card’s APRs may automatically change as well, and the new APRs can apply to existing and new transactions.

Similar to fixed-rate cards, after the first year, the card issuer can also change the fixed portion of your card’s interest rate after sending you a notice or if you fall behind on payments.

How to Find Fixed-Rate Credit Cards

Finding fixed-rate cards may require looking beyond big-name issuers and comparison websites. Here are a few tips:

• Check with Local Credit Unions and Banks: Fixed-rate cards are most commonly found at small financial institutions, such as community banks and local credit unions. Research the card options on their websites or visit a local branch to ask if they offer fixed-rate cards.
• Compare Rates, Benefits, and Fees: If you find several options, compare their interest rate ranges (your fixed rate could still depend on your credit score), benefits, and fees.
• Become a Member and Apply: Apply online or in a branch to see if you get approved for the card. If the card is from a credit union, you’ll need to become a member before you can get a credit card. Sometimes, membership eligibility can depend on where you live or work.

Once you have your new credit card, it will work the same as a variable-rate credit card. And as with variable-rate cards, your purchases won’t accrue interest if you can pay off your balance in full each month.

Frequently Asked Questions

Can a Credit Card Have Fixed Interest?

Yes, some credit cards offer fixed interest rates, though they are less common and often found through smaller banks and credit unions.

Is Fixed Interest Better Than Variable?

Whether fixed interest is better than variable depends on your financial situation and preferences. Fixed interest rates provide stability and predictability, while variable rates can offer more flexibility and potentially lower initial rates.

Can the Rate Change on a Fixed-Interest Credit Card?

Yes, the rate on a fixed-interest credit card can change under certain circumstances, such as after the first year, with notice, after promotions end, or if you miss payments.

If you’re looking for a new credit card, your credit scores can affect your eligibility and the interest rate you receive. Check your credit score for free and use your Experian membership to compare credit card offers based on your unique credit profile.

For any mortgage service needs, don’t hesitate to call O1ne Mortgage at 213-732-3074. Our team is ready to help you find the best solutions for your financial needs!