How to Get a Low Interest Rate Credit Card

Guide Note: Are you paying 27.99% on your credit card? Are you wishing for an old-fashioned loan-shark to just come along and take a finger or two instead? Well, you may be in luck: If you're selective and read the fine print, you might just be approved for a new low-interest account and get to keep your fingers. This page explains How to Get a Low Interest Rate Credit Card.

Disclaimer: The content of this page is intended for general informational purposes only and is not a substitute for professional financial advice. Table of Contents:

Introduction

(Creative Commons photo by The Consumerist)
(Creative Commons photo by The Consumerist)
  • With a mailbox full of 0% introductory rate offers, it's easy to get distracted. But if you're hunting for a low interest credit card, there's more to it than spotting a low rate, even if you're savvy enough to look beyond the introductory rate.
  • Luckily, no matter the state of the economy or your personal finances, credit card companies are competing for your business. If your credit score is merely average, you may still be able to get a good rate. That doesn't mean you qualify for the very lowest APR available, but a few simple steps can insure that you don't get fleeced. Most importantly, make sure to read—and understand—the fine print before you apply.

Step 1: Understand Interest Rates

  • While all credit cards come with an assortment of potentially money-draining fees, the main cost of holding one is it's annual percentage rate (APR). Understanding the APR—in its various forms—is the job of any smart credit-rustler.

APR

  • The APR is the measurement to use in order to compare one card's interest rate to another.
  1. APR indicates the amount of interest you will owe the credit card company in a year, measured as a percentage of your balance.
  2. For example, lets say you maintain a balance of $1,000 on a card with a 10% APR—by the time twelve months have elapsed, you will owe the credit company $1,100.
  3. Creditors are required by law to inform the applicant of a the credit card's APR, but it's crucial to read the fine print.

Fixed APR vs. Variable APR

  • When you dig your tweezers into the fine print, you'll find that some cards have a "fixed" interest rate, while others is "variable."
  1. A fixed rate may vary, but the issuer is required to inform you before it changes.
  2. A fixed rate card with a low APR is probably the most desirable option.
  3. A variable rate may not be as insidious as it sounds: it means that the rate is linked to an interest rate controlled by the Federal Reserve, usually the prime rate.
  4. If your variable APR is linked to the prime rate, then it will rise every time the prime rate rises, and vice versa.
  5. A low variable rate card can be a good deal, if the prime rate remains low.
  6. Note that a variable APR won't be the same as the prime rate, but higher. The difference between the prime rate and your APR will be specified in the contract as the "margin." For example, a margin of 3.99% means that the APR is the prime rate plus 3.99%—so if the prime rate is 7%, your rate will be 10.99%

Step 2: Get Your Credit Score

Wake up: don't live in blissful ignorance of your credit score. (Creative Commons photo by Liz)
Wake up: don't live in blissful ignorance of your credit score. (Creative Commons photo by Liz)
  • Your credit score—or FICO score—is a number between 300 and 850, used by financial institutions to gauge the risk of loaning you money. Unfortunately, our financial system makes it confusing and potentially costly to obtain your FICO score.
  1. Though Congress has mandated credit bureaus to provide all taxpayers a free annual credit report, this report does not include the FICO score.
  2. Making matters worse, each of the three major credit bureaus—Equifax, Experian and Trans Union—surveys your credit record differently and assigns you a different FICO score.
    • While these figures will most likely be in the same ballpark, it's a good idea to get all three.
  3. You have a choice to make: either get one of your FICO scores and hope the others are similar, or get all three and average them together.
  4. To get one FICO score, register for the Score Watch 30-day trial at MyFICO.com.
    • Be certain to cancel before 30 days has elapsed, or you will be automatically billed $89.95 for a year membership.
    • This program will provide you only with your Equifax FICO Score.
  5. On the other hand, if you want to get all three of your FICO scores, register for the FICO Credit Complete program, for a one-time fee of $47.85.
    • To determine the average of the three scores, use an online calculator: add the scores together, then divide by three.
  6. Finally, assess your FICO score. Whether using a single score, or an average of three, use the following rough parameters:
    • Excellent: 760 and above
    • Good: 700 to 760
    • Average: 620 to 699
    • Bad: 619 and below

If you belong to a credit union, consider applying for your card through it, before opting for another. According to CNN Money, consumers with cards issued by credit unions report higher satisfaction rates and lower interest rates. On the other hand, credit cards issued by retailers often have the worst interest rates.

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Step 3: Browse the Market

  • Luckily, you're no longer at the mercy of mass-mailed credit card offers. In the Internet age, you can comparison shop for a credit card the same way you would for a flatscreen, or digital camera.
  1. Go to Bankrate's credit rates comparison page.
  2. In the field labeled Select by Credit Type, click the term that characterizes your FICO score: Excellent Credit, Good Credit, Average Credit, or Bad Credit.
  3. A new page will open with a list of credit card offers that are applicable to your credit score.
  4. Your credit rating is affected every time you apply for credit, so make a careful assessment of each offer before hitting the fateful Apply Now button.
  5. In each offer listed, focus your attention on the middle column labeled, Regular APR.
  6. The first column, Intro APR lists a limited introductory rate, which is less important in the long run, but worth noting as well.
    • 0% introductory rates are very common, but need to be weighed against other factors, such as the length of the introductory period and the regular APR.
  7. Also Note the Annual Fee column. If your rating is in the Bad Credit category, there's likely to be a substantial fee.
  8. Write down the names and stats of all of the offers that interest you.

Step 4: Read the Fine Print

  • Here's where things get tricky. The Regular APR figure on the Bankrate page is just a benchmark—it may or may not actually reflect the rate you'll get. Here's where it pays to dig a little deeper.
  1. If the offer contains a link to Terms and Conditions, click it.
  2. If not, click on the image of the card, which should lead you to an application that contains its own link to Terms and Conditions.
  3. Scour this information for any mention of APR.
  4. Note whether the APR is fixed or variable.
  5. Remember, a fixed rate may eventually change, but the issuer is required to inform you before it changes.
  6. Note whether the terms and conditions specify that the rate is fixed for life—if so, this may be a good choice.
  7. It's likely that the fine print will list several other rates in addition to the figure specified on the Bankrate page as the "Regular APR." Be sure to note all of them.
    • The fine print can be hard to understand—zero in on what's important. (Creative Commons photo by dustinpsmith)
      The fine print can be hard to understand—zero in on what's important. (Creative Commons photo by dustinpsmith)
    • The rate you're offered will reflect the specifics of your credit history—and you won't know which until you apply.
  8. A variable rate card with a low APR can be desirable, particularly if the prime rate is trending downward.
  9. If considering a card with a variable rate, scour the fine print for two specific figures:
    • Margin: Remember: the margin is the difference between the prime rate and your APR. A 3.99% margin means the APR is the prime rate plus 3.99%.
    • Lower limit or Rate Floor: This feature only benefits the creditor. It means that your variable APR cannot go lower than the stated rate. If the "lower limit" is not actually low, you may not see the benefit of a low prime rate reflected in your APR.
  10. Beware the Universal Default Clause: A final thing to look for in the fine print is any mention of a "default clause." This mechanism allows the issuer to jack up your rate to nearly 30% if you make a late payment.

Step 5: Make a Decision

  • It's time to narrow down your list of offers to one. Do not blitz the field, thinking you're bound to be accepted by one company or another—remember, every time you apply for credit, points are deducted from your FICO score. Compare all the following stats, make a decision and apply.
  1. APR: Note the full range specified in "terms and conditions."
  2. Fees: Is there an annual fee?
  3. Intro APR: Is it 0%? Is the introductory period long enough to offset a higher regular APR?
  4. APR type: Is it "fixed" or "variable"?
  5. If it's variable, compare the margins and rate floors.
  • Good luck! If you're turned down, just apply to another one of the cards on your list.

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