How do credit card companies determine their APRs?

Credit card companies compute APR or Annual Percentage Rate depending on the circumstance and the contract agreement between the client and the company. Generally, APR is a penalty imposed for unpaid loans or credit balances. In some instances where the credit score of the client is high, a lower interest rate may be imposed. On the other hand, a higher penalty rate may be charged on cash advances. Credit card companies may also lower the APR computation as a means of luring clients to transfer their loans from other banks to theirs.