5 things to know about low interest cards
By Jennifer Nelson
May 6, 2016
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If you are prone to carrying a balance on your credit card, you really need a low interest rate card. But what exactly constitutes low interest these days and how high does your credit score have to be to qualify for one?
Let’s start with the basics:
Some people pay off their credit card balances each month, and others use their cards to buy big-ticket items and pay them off over time. A low interest rate card can be helpful as it will allow a larger percentage of your monthly payments to be applied to the balance instead of interest charges on rolled-over balances.
If you are carrying debt on a high-interest card, a good option might be to transfer that balance to a new or existing low interest card.
While the average interest rate on credit cards has been around 14 to 15 percent for the past few years, the average interest rate on low interest cards is just under 12 percent, according to CreditCards.com’s weekly rate report.
What beats low interest? Zero interest. Oftentimes, low interest cards offer an interest-free promotion for six months to over a year, which can be great if you’re transferring a balance, but pay attention to what the variable interest rate will be when the introductory period expires. Variable means the interest rate may shift with the prime rate. Note, though, that during that 0 percent interest period, 100 percent of your payments will be applied directly to the balance, speeding up your debt payoff time.
Here are five things you need to know about low interest credit cards:
1. Your card’s interest rate will depend on your credit score.
For example, the Capital One VentureOne Rewards Card starts with 0 percent interest until April 2017 then charges a variable 12.24, 17.24 or 22.24 percent interest depending on your creditworthiness, says Priyanka Prakash, a finance specialist at Fit Small Business, an educational site for entrepreneurs. Someone with a FICO score of say 800 will probably qualify for the 12.24 percent rate, whereas someone with a 600 credit score will likely receive the highest rate (if they qualify for the card at all).
Takeaway: Check your credit score before applying so you know which APR you’re likely to pay once any promotional period expires. FICO and Vantage scores run from 300, which is considered poor, to 850, which is considered excellent. If you’re working on improving your credit scores, it is best to wait to apply for a low interest rate card until you’re in a better position to snag a low variable interest rate.
2. Ask your current issuers to lower your card’s interest rate.
If you already have a card or two in your wallet and have been a good credit customer, ask your issuer or issuers to lower your interest rate. The call is no different from asking your cable provider to give you a better deal. Depending on the issuer, your issuer may or may not need to run a fresh credit check. Start by pointing out how long you’ve been a customer, that you make your payments on time and have a credit card offer with a better interest rate and would like to see if they can match it. Be reasonable, courteous and friendly, but firm. If your issuer won’t budge, ask to know the reason why and point out that you’ll likely leave that card company for the one offering the lower interest rate.
Takeaway: Mention your credit score and know the going low interest rate. If they refuse a request for a 10 percent rate and you currently pay 15 percent, you may want to ask for a meet-in-the-middle compromise of 12.5 percent.
3. Do your homework on low interest cards.
Don’t just respond to the credit card offers in your mailbox, comparison shop. Compare low-interest card offers If you want to transfer higher interest debt to a new card, ignore rewards and perks and concentrate solely on the interest rate, any annual fee and balance transfer fee (which typically runs 3 to 5 percent of the amount transferred). “The Chase Freedom card is one of the most popular low interest rate cards from a big bank,” says Adam Collins, at MVMT Capital, an independent investment firm based in Mississippi. The Barclaycard Ring Mastercard has a very competitive 8.25 percent APR, but no 0 percent rate for an introductory period, he adds.
Takeaway: Shop around. Compare the options and apply for the best card that meets your needs.4. Check out credit unions for low interest cards.
Credit unions can be a good way to get a low interest credit card. Collins says some people don’t like credit union cards because the rewards (travel and cash back) often pale in comparison with rewards offered by big banks, but rewards aren’t the priority with a low interest card. Credit unions don’t advertise their cards as well, so you’ll need to do some research to find the best ones. Plus, you’ll have to join a credit union and open an account.
Takeaway: Investigate the low interest cards available from credit unions in your area. Check also to see if you qualify to join a professional credit union, such as ones for teachers, firefighters or military personnel. Visit the credit union websites, suss out their credit card deals and read reviews of the credit unions and the cards as well.5. Get that 0 percent rate for as long as possible.
Shop around for the longest 0 percent promotional rate. For example, the Citi Simplicity card currently offers 21 months of 0 percent interest on purchases and balance transfers. If you can make a charge and pay off the balance in full during that time, it’s borrowing interest-free. The Citi Double Cash Card offers 18 months at 0 percent for a balance transfer, and the Blue Cash Everyday Credit Card from American Express offers 12 months at 0 percent for both purchases and balance transfers. The downside of introductory offers is that after the teaser period is up, the interest rate jumps anywhere from 11 to 24 percent.
Takeaway: If you’re looking to finance a big purchase or erase an existing debt and you can pay it off in 15-21 months, go for a 0 percent introductory balance transfer card with a lengthy promotional period.Once you’ve locked down a low interest rate, whether through negotiating a better rate or opening a new card, keep that low interest rate by making on-time payments, not exceeding 30 percent of your credit limit and keeping tabs on your credit score so you’ll know when you’re in the position to negotiate an even lower rate.