The universe of credit card interest rates can be mysterious and sometimes frightening. With different names and numbers, they can cause confusion and irritation among credit card users. Finding low credit card interest rates requires time, patience, and effort.
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But when you do have the time, it makes perfect financial sense to spend it in understanding the different types of credit card rates, how they are calculated, and the various circumstances under which they are applied.
Demystifying the Credit Card APR
An APR or an annual percentage rate is the cost of using a credit card, if you do not pay off your credit card balance every month. Calculated at a yearly rate, your credit card APR determines how much your will pay per month.
Your credit card APR is directly linked to your FICO scores or credit scores.
Credit scores determine your creditworthiness, or your ability to pay off your debts in a timely fashion. If your credit scores are high, you are likely to get attractively low credit card interest rates. However, if your credit scores are poor or you don’t have any credit history at all, you will be less likely to get advantageous credit card interest rates.
The Complexity of Credit Card Interest Rates
Credit card companies apply different kinds of credit card interest rates on your activities. You should be aware that credit card purchases would most likely be carrying a different interest rate as opposed to transferred balances or cash advances.
Credit card companies regularly put forth low rate or zero interest rate credit cards. These incredible teaser rates are viable for a minimum of six months and are usually applicable towards balance transfers only. If you are late by over 60 days in making your credit card payment, then a penalty interest rate kicks in automatically. This punitive interest rate is much higher and can be reduced only by making timely payments for six months.
If you ever use your credit card for cash advances, you should be aware that you will be charged at a higher rate than your average credit card APR.
According to Chron, all credit card rates are pegged to either a prime lending rate or index that change monthly or they are fixed. The details of your credit card interest rate are stated in your credit card agreement.
As the name indicates, the variable APR can change month to month or quarterly, depending on the agreement you have signed with your credit card company. A variable APR protects the credit card company since it adjusts according to fluctuating rates. Increasingly, credit card companies are leaning towards variable APRs, given the uncertainty of the present economic weather.
On the other hand, a non-variable APR or fixed APR is not impacted by any index rates. So you are protected from market fluctuations. But you must remember that fixed APRs are not guaranteed and credit card companies have provisions in their agreements that allow them to change the APR terms depending on market factors or consumer payment behavior. But under the new CARD Act, they are required to inform you about any such changes to your agreement, 45 days before their onset.
With this knowledge of different kinds of interest rates levied upon you by credit card companies, the next step is to get the lowest credit card interest rates possible.
Reducing Credit Card Interest Rates
In a report by CNN Money, consumers still have some leeway in negotiating better terms with their credit card companies. Notwithstanding stringent lending standards, credit card users still have room to negotiate, given that over 10, 000 different types of credit cards are available.
So do your research, put on your best negotiating face and you might be surprised at the results. According to financial gurus, the following steps will strengthen your bargaining position.
No matter how old you get, doing your homework will get you ahead. Learn about market interest rates and competing companies’ offers. Additionally find out what interest rates are available to you, given your personal credit score.
Once you have all the required information, speak to your lending company. Ask them, politely, what options they have available for you, including increased rewards points. If you have been a good customer, the lending company will make all efforts possible to retain your business. Any changes that are agreed upon, whether credit card interest rates or new rewards structure, need to be sent to you in writing.
Make sure you check your FICO scores regularly. Lack of reporting or mistaken reporting by your lending companies can drive your FICO scores down, leading to raised credit card interest rates.
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