Credit Card Applications: What to Look For
06/11/09
If you have good credit, credit card applications will arrive in the mail with alarming regularity. Consumers with especially good credit can get several offers a day, every day. When you are given so many options, how do you decide which credit card offer is the best one for you?
Start by paying no attention to any of the promotional offers. Those 0 percent interest rates are good only for an introductory period; after six months or so, they shoot up to the real interest rate, which is usually in the double digits. Examine your credit card applications for the real interest rate, which is usually hidden in the small print or in a chart on the back. Use the real interest rate to sort your offers, and throw away the offers at the high end. Give your attention only to the offers with the lowest regular interest rates.
The one exception is promotional offers in which you are invited to roll over debt from another credit card, and the low interest rate will apply to the transferred amount for as long as it takes you to pay the loan off. If you have a large balance to transfer off another credit card, and you do not plan to charge any purchases to the card after you have transferred the balance, then this kind of promotional offer can be an excellent way to get a low interest rate on a large outstanding balance. However, any charges you make to the card after the introductory period have a much higher interest rate, and any payments you make to the credit card company are applied to your lowest interest rate balances first. Before you can start to pay off the charges you made at a higher interest rate, you must completely pay off the original sum you transferred onto the card. During the months or years it takes you to pay off the original sum, the new charges will accrue hefty interest, all of it money in the credit card company's pocket. Consider this kind of promotion only if you need to roll a large balance onto a card with a lower interest rate, not if you are looking for a credit card to use on a regular basis.
When you have winnowed your options down to a handful of credit card application with appealingly low interest rates, take a look at their default interest rate. This is the interest rate you will be charged if you are late with a payment, exceed your credit limit, go into default, or commit a host of other credit sins. It can be ridiculously easy to trigger the default rate, so even if you are a punctual bill payer, give careful thought to the cards' default rate. Select the lowest default rate you can find.
Once you have a collection of credit card applications with low regular and default interest rates, then you are free to consider the other goodies the companies are offering. This is the fun part, so enjoy! Then fill out the credit card application for the best card, drop it in the mail, and use your new credit card with confidence.
More