September 29, 2008 in Credit Cards

Before signing up for the first low-rate offer that comes your way, shop around for credit cards. Maybe that great rate only lasts six months or the annual fee eats up any savings you could enjoy from the low introductory rate.

Do a little comparison shopping and you might find a card with the same rate for at least a year or another card with the same deal but no annual fee.

An essential tool for finding the best card is the Bankrate.com credit card search engine. It’s a great reference and comparison tool. Keep it handy as you keep refining your choices.

If you’ve had your card for a while, shop around again because now there may be a new deal with the same card company, or a different, better arrangement out there with another card company that wants your business.

Credit cards may come with either a fixed rate or a variable rate of interest.

Balance all the numbers

Experts commonly suggest that a low, fixed-rate credit card is better than a low, variable-rate credit card. Card companies can raise their fixed-rate cards when interest rates go higher, but change is not automatic and they need to give you 15 days’ notice. With a variable-rate card your rate can move regularly and without any prior notification.

Rule of thumb: A low, fixed-rate card is better than a low, variable-rate card.

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Information like that — when a card company can raise your rate — is often buried in mail they send you. So always be careful: that may not be useless promotional/advertising junk you’re throwing away from your credit card company’s envelope. It may be important. For example, it may be a notification that your fantastic rate triples the first time you’re late with a payment. The same advice applies not only when you’re searching for a card, but after you get one — check out all that “junk” mail in your statement envelope before you toss it.

Be sure you are aware of your payment profile, because the way you plan to pay your bills is important when it comes to choosing a card. Paying every cent every month (instead of paying just a part of it) changes what you are shopping for.

Be honest with yourself

Get real. You may say you’ll pay off every statement in full every month, and you may even promise that you’ll have a zero balance by the time the teaser rate expires — but will you? Unless this is your credit history, don’t make promises to yourself you can’t keep. Because if you don’t do what you said you’d do you may be stuck with a very, very expensive card.

Make sure you confirm with a company that they are offering what you think they are offering. It’s very easy to misunderstand some of the arcane information there in the small print. Go over it with them, then ask if they can do better — their best offer may not be the first deal they offer you.

Understand key numbers before you sign: What is the APR, annual fee, grace period, penalties, late payment charges, over-the-limit fees and interest rates on any cash advances, and under what circumstances can the card company change your interest rate (or any other terms of the deal)?

Don’t plan to rely on your credit card as a source of cash advances. You should only get cash advances when it is absolutely necessary because they usually come with higher interest rates

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Annual fees aren’t things you ordinarily want on a credit card. But in cases where you intend to carry a balance, you may want a card that has an annual fee. That’s because it may offer substantially lower interest rates.

APR alone doesn’t make the deal

The interest rate you pay (best calculated as an annual percentage rate) may not by itself determine if you have the best deal. The way that APR is applied to outstanding balances can vary — and that can mean more, or less, comes out of your pocket to pay for the luxury of borrowing money. Penalty fees or other additional charges (e.g., annual fee, late fee) also need to be figured into the value of any deal. For example: If you know your credit history and you know that, despite your best efforts you’re going to be late a few times with the payment, use a calculator to see if a card with a slightly higher interest rate but lower late fee might be a better deal.

But the lower the rate the more you save on the finance charges that are applied to outstanding balances. You should look for credit cards that offer a low intro rate (usually for at least 6 months). But be sure you know what happens when that introductory (or “teaser”) rate expires. What is the new rate? Does anything else in the deal change apart from the rate?

You can also take your balance at a card company charging you a high interest rate and transfer it to another company with a lower rate.

Card perks may cost you

Remember to balance your numbers. Credit cards offer perks and kickbacks and they may just have something perfect for you — and that can balance out a higher interest rate. If you don’t intend to carry a balance for long, you may want to choose a card that offers these rewards even though the interest rate might be a few percentage points higher than another card.

Card issuers may offer additional options. Some are valuable and save you money. Some aren’t and don’t. Some may be added automatically and give you no choice, some you may have to ask for, some you may be able to turn down. Some you may agree to without knowing it if you don’t read all the fine print in your deal or your monthly card statement.

Popular options commonly include:
  • Cash rebates on certain purchases (or in some cases all purchases).
  • Purchase protection — a sort of insurance for what you buy with the card.
  • Discounts on a lot of good and services.
  • Insurance on such things as travel or auto rentals.
  • Frequent-flier miles.

What if you’re preapproved?

Preapproved means little. It simply means the card company is aware of your credit history and standing. It doesn’t automatically give you any special rates or breaks when it comes to the terms and costs of the deal. And the small print will generally give your card company the opportunity to change the deal you were preapproved for.

Once you’ve got the card, monitor your statements closely and make sure you aren’t throwing out important account information with that junk mail in the statement envelope.

Be sure you know what you owe, what you’ve paid and where you stand. Otherwise it’s easy to have trouble build up and one day surprise you. Or you may simply miss the chance to get an even better deal.

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