How to Compare Low Interest Credit Card Offers
By Eva Norlyk Smith, Ph.D.
October 4, 2010
About half of U.S. cardholders carry a balance forward on their credit cards from month to month. With credit card interest rates continuing to inch upwards, it makes more sense than ever to look for ways to reduce interest expenses when carrying a credit card balance.
For cardholders looking to carry a balance, there are basically two choices: taking out a 0 APR balance transfer offer or applying for a low interest credit card. Generally speaking, cards with 0 percent promotional APRs are useful only if you can pay the balance off in full before the promotional rate expires. Most 0 APR credit cards come with a high interest rate once the promotional period expires, and you could end up stuck with credit cards earning interest as high as 22.99 percent. And don’t plan on being able to transfer the balance to a new 0 APR credit card. Firstly, each transfer will cost a 3 to 5 percent transfer fee, secondly, the greater the need a cardholder has to make a balance transfer to get rid of high-interest credit card debt, the less likely he or she is to qualify for it.
In short, while low interest credit cards may not seem as juicy a deal as 0 APR offers, they make the most economic sense for anyone looking to carry a balance for a longer period of time. Still, in today’s credit card environment, with steadily rising interest rates, low interest credit cards may seem like an oxymoron. Rates on “low interest credit cards” from major card issuers range from 12.99 to 14.99 percent variable, not exactly a jaw-dropping deal.
Yet, with a little bit of digging, there are still plenty of decent low interest credit card offers to be found. Many credit unions, such as the Pentagon Federal Credit Union and smaller banks like Simmons Bank and Iberia Bank, still offer attractive low interest credit card deals with rates in the 7.99 to 9.99 percent range. In addition, many local banks feature appealing low interest credit card offers, particularly for consumers who already have a relationship with them.
When comparing low interest credit card offers, ask the following questions:
1. Which credit score is required to qualify for the card? Most low interest credit cards require a good to excellent credit score. To determine your credit score, use a FICO Score Estimator. If your score doesn’t qualify you for the best low interest card offers, consider taking some simple steps to improve your credit score. Alternatively, consider applying for a low interest card, such as the Iberia Bank Visa Classic card, which offers a tiered interest rate based on credit worthiness, however, expect to pay a higher rate.
2. What is the initial credit line going to be? Many low interest credit card issuers start new cardholders out with a small credit line, as low as $500. Call the issuer before applying to inquire what their typical starting limit is. If it is low, consider applying for a low interest credit card with more than one issuer. While it’s typically not advisable to apply frequently for a credit card, since it will lower your credit score, applying for a couple of credit cards in one sitting tends to make less of a dent in scores, because the credit rating bureaus will assume you’re shopping around.
3. Does the card feature a balance transfer offer? Some low interest credit cards lets new applicants have their cake and eat it too. While you’re not likely to find 0 APR offers on cards also featuring purchase rates below 10 percent, some do offer lower introductory rates. The PenFed Promise VISA Card, for example, offers a fee-free 7.49 variable APR on purchases and balance transfers for 36 months, essentially giving new cardholders a 3-year, 7.49 percent loan.
4. What are the application requirements? Some low interest card issuers rely on other information than just FICO scores when evaluating credit card applications. For example, to qualify for IberiaBank credit cards, applicants must have been employed with their current employer for at least six months, and they will be required to provide proof of income. Credit card applicants must also have a credit history free of delinquencies, bankruptcy, or collections.
5. What are the terms and conditions? Check the summary of terms and conditions on the card issuer’s website. Some card issuers may levy steep penalty rates on future charges in case of e.g. a late payment or returned check. Knowing the terms up front can help you avoid nasty surprises down the road.