Low Rate Credit Cards- A Consumer Primer
Written by CardRatings.com
Posted On: September 6, 2005
Credit card balances are rising faster than consumers can pay them off. And with a high interest rate card it can be difficult to even make a dent in debt. According to Consumer Action, a non-profit, membership-based organization, a March 2004 survey revealed that only 39% of the people said they pay their credit card balance in full each month. So if you are like 61% of everyone surveyed and carry a balance from month to month, then your number one priority for a credit card should be a low interest rate.
What is considered a low interest rate?
According to Linda Sherry, editorial director and spokesperson for Consumer Action, anything below 10% is an attractive rate in today’s market.
Look at the Savings
Are the savings really all that much with a low rate credit card? Here’s an example to show you just how much you will save.
Let’s say you have a $2500 balance on your credit card, you make the minimum 2.5% payment, and you don’t add any new charges to the card. With an 18% APR (annual percentage rate) it would take you 20.3 years to pay the card off at the cost of $3365.51 in interest alone!
If you are able to lower that interest rate to the average standard, fixed rate of 12.99% you will reduce the time it takes to pay off the debt to 15.2 years and your total interest will be $1732.95—a 48.5% savings over the 18% APR.
But if you can qualify for a 9% APR, your debt will be paid off in 12.6 years with a total of $977.48 in interest—a whopping 71% savings over the 18% card. And if you commit to paying the first month’s minimum payment of $62.50 each month until the entire balance is paid off, then you will shave off another 8.6 years and another $494.01 in interest!
Who can get the lowest rates?
In order to get the lowest advertised APR you will need a good credit rating. While most issuers have their own criteria for a good credit rating, Sherry says that in general a FICO score of 675+ is good and 750+ is excellent. If you are in a situation where you need to raise your current score, please read our article How is a Credit Score Calculated and How Can I Improve My Credit Score?
Where you Can Find the Lowest Rates
If you do have a good to excellent credit rating, then according to Gerri Detweiler, founder of DebtConsolidationRX.com and author of The Ultimate Credit Handbook, if you are paying more than 10-12% you need to start searching for a lower rate card and there are several different avenues of approach.
Read Your Mail
Often times the best offers come right to your mailbox. But you need to read through the offer very carefully to determine if it is an introductory rate or a long-term rate (ongoing). Also, Sherry says you need to look for the words “you are pre-approved” as opposed to “you are invited to apply.” If it is an invitation only, you may not qualify for the rate advertised, and you won’t know until after you apply. You should also be aware that you may not get the rate advertised in a pre-approved offer. In fact, you may even be declined for the card. Please be aware that almost all of these mail offers are marketing schemes rather than true pre-approved offers.
Learn to Negotiate
Mail offers and other low rate credit cards you carry can come in handy as a negotiating tool with your current card issuer. Scott Bilker, creator of DebtSmart.com and author of Talk Your Way out of Credit Card Debt, suggests calling your issuer and letting them know you have better offers elsewhere and that you are considering switching to another card if they won’t lower your rate.
Don’t be afraid to take back control…in today’s saturated market, credit card issuers are looking to hang onto customers. If you want to know exactly what to say to a credit card customer service rep., check out Bilker’s book which contains transcripts from actual telephone conversations with reps.
Local Banks and Credit Unions
When shopping for a low rate credit card, looking to a local bank or credit union may be a good option. In addition to a good rate you may find the customer service more personal and appealing. But beware of banks that offer a rate significantly lower than the big banks or below the Prime Rate, especially if you know your credit is not good enough to qualify. Another thing to consider is that introductory rate offers from local banks and credit unions are not generally as aggressive as introductory offers from larger banks.
Sherry says it’s a good idea to investigate any credit card offers that may come through associations you are part of such as alumni groups. These large groups often have more muscle to negotiate special terms for their members. For example, for their members, AARP got the binding arbitration clause, which has come under scrutiny recently by consumer advocates, left out off the terms and conditions of the AARP credit card.
Finally, CardRatings.com offers detailed comparisons of the lowest rate cards currently available. Browse CardRatings.com's Card Reports section and conveniently apply online to start reducing your interest charges.
With a little bit of knowledge beforehand you will be able to shop for the best low ra te credit card for your needs. Investing a little bit of time doing so could save you 1000s of dollars and will definitely be time well spent!