Experian "Real Rates" - The APR You See is the APR You Get

Research by Showbrook shows that more than 21% of all consumers who apply for a credit card do not receive their cards at the promised APR (Annual Percentage Rate). The research shows that the average difference could be as high as 2.4%.

Experian saw this gap and discrepancy in the market and decided to do something about it by introducing their “Real Rates” service to the credit card industry.

What Experian’s “Real Rates” Service Means for the Credit Card Industry

You might be wondering why this is such a big deal. After all, you do know the real rate you pay to use your credit card. It shows up on your bill all the time. While this is true, the reality is that not everyone knows the percentage they will be charged when applying for their credit card. Legally, credit card companies and other loan providers only need to offer their APR (Annual Percentage Rate) to a minimum 51% of their customers; this means that there is a huge 49% of people who apply for credit cards without really knowing how much they will be charged until they are done with the application. Often, as the research mentioned above proves, the rates they think they are getting varies by 2.4%. More likely than not on the higher side of things.

Experian’s “real rates” service eliminates that “lottery” element from the equation. Before this service was introduced, 49% of customers who applied for credit cards only had the representative APR, which was just a rough guide, to go by. This means that they did not know the real rates they would be charged until they were done with the application and the mark was already made on their credit record. What Experian has done by introducing their “real rates” service will bring much-needed transparency to the credit card industry. This will not only help consumers make more informed decisions when applying for a credit card, but it will also help them choose the ones with the lowest APRs if that is what they want.

About Experian’s “Real Rates” Service

While the service is indeed a game changer, it is important to note that customers will be able to get the real rates that are offered only by a select few providers. So far two major credit card companies are signed up with Experian’s real rates service:

Virgin Money
Capital One

There is no doubt that as time goes by and as more and more customers begin to demand transparency in the industry, more providers will sign up for the service but that remains to be seen.

Experian has also signed up a few loan providers in their real rates for loans service:

Likely Loans
Lendable
Shawbrook
Zopa

As is the case with real rates for credit cards, real rates for loans are also expected to expand with time. Amir Goshtai, the Managing Director of Propositions & Partnerships at Experian confirmed as much when he said that the company is in talks with other lenders to sign-up for the service. He acknowledges that it is not right for almost half the people applying for credit cards and loans not to know the actual rates that they will be charged until the point where they have completed the application, and it has made a mark on their credit history and has affected their credit score because of the inquiries.

The Different Types of Credit Card Interest Rates and How to Find Them

The good thing is that up until now, there has been some positive movement in the direction of standardizing and regulating the credit card industry. Although most companies and lenders still offer what is known as “range rates” as opposed to a specific interest rate for their customers to consider, some legislations make it easier for people to find this information.

Congressman Schumer is largely responsible for this legislation, and as a result, credit card companies are required to provide this information on their websites. It can often be found under “terms and conditions” or in some cases under “rates and fees.” The regulation is so strict that the information is provided in a format known as the “Schumer Box.” Even the font used is standardized and regulated so that credit card companies do not get sleek and hide this information in fine print.

When looking up this information, pay attention to the following interest rates because they will determine how much you end up paying:

Purchase Annual Percentage Rate
Balance Transfer Annual Percentage Rate
Cash Advance Annual Percentage Rate
Penalty Annual Percentage Rate

While the rates mentioned above are very much part of the bargain and vary from credit card provider to credit card provider depending on how competitive they want to be in the market, there is one type of interest rate for which consumers should always be on the lookout!

The range of Rates Versus Specific Interest Rates

This is where what Experian is doing with their “real rates” service comes into play. Many companies offer a specific interest rate that all their cardholders will pay. If that is the case, then you are safe with that company. At least you know what you are getting into when you sign up.

However, more and more companies are increasingly beginning to offer what is known as a “range of rates.” The explanation for this is that the rate you get once you apply for your credit card will depend on things like your creditworthiness.

The range could fall between something like 13.89% – 23.99%. Meaning that if you have really good credit, then you might qualify for the low rate of 13.89% but if you have bad credit, then you might end up with the 23.99%.

The problem is that a vast majority of applicants fall somewhere in between. Where exactly is difficult to tell until they have completed their application for the credit card and this is what Experian wants to eliminate completely.

Because there are so many hidden rates, or the range of rates is too wide, most people often end up with the wrong credit card and end up paying a high price for that mistake with both their money and their credit rating. Experian’s “real rates” service is looking to bring transparency to this field and help users know what they are getting into when they apply for new credit.