It’s safe to say that everyone would enjoy a better credit card interest rate. No one is out there just itching to give more money to the credit card companies and banks through high-interest rates. However, to get a better credit card rate, you have to walk a fine line. There are many ways to get a better rate, but they take careful attention and consideration before you get your credit card and after you have a credit card.
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Credit card interest rates are directly tied to your credit score, so that is the first place to start. After that, you will need to carefully monitor your payments and credit card balances to maintain that low rate; it can go higher if you mess up! Lastly, you can even banish your credit card interest rate if you want.
Good Credit Scores Get Better Rates
All lenders these days rely on credit scores from the three major credit-reporting bureaus: Experian, Equifax, and TransUnion. Your credit score is a numerical representation of your financial history for the last seven to ten years.
A high credit score shows lenders that you pay your bills on time, that you are financially responsible and that they can trust you to pay them back in a timely manner. Thus, you are awarded with a lower interest rate.
Conversely, a poor credit score indicates that you are more likely to skip out on payments, to run up high balances and that you won’t honor your debts. Consequently, lenders such as credit card companies judge that you can’t be trusted with their money. They are willing to take a risk on you, though, in exchange for an increased profit. This means that you will only be approved for a credit card that charges a higher interest rate.
What You Should Do Before Applying for a New Card
So before applying for a credit card, it is a good idea to get your credit score in tip-top shape. By law, every U.S. citizen is entitled to one free credit report from each of three major credit bureaus every 12 months, according to Federal Trade Commission. The only website that provides truly free credit reports is AnnualCreditReport.com, but the reports can also be requested by phone or through the mail.
These reports will list other credit accounts you have, such as store cards, mortgages, or car loans. They will also show any past-due bills that have been sent to a collection agency, any bankruptcies, or any civil judgments in the past seven to ten years. Lenders are looking for a mix of credit accounts that all have excellent on-time bill payments. Any accounts that don’t meet the criteria need to be removed if they are incorrect or paid off if you are responsible for them.
Unfortunately, the free credit report rule does not include a credit score; you’ll have to pay to get your credit scores directly from the bureaus or through a credit monitoring service. This cost will pay for itself many times over through lower credit card rates and low interest rates on other loans. You are aiming for scores over 680, into the 700s and beyond. Keep in mind that this can be a long process, taking at least a few months to achieve success.
Get the Best Rates with Your Great Credit Score
Now that your credit score is as healthy as possible, it is time to apply for a credit card. Do your homework and look into a few different credit cards to compare different offers. Check out the go-to interest rate, or APR for purchases, first. This interest rate will apply to most of your transactions. Use the credit card comparison tool at SmartMoney to compare the costs of two credit cards to see which the better deal is.
Generally, credit cards with rewards such as cash back or airline miles have higher APRs than those without. Those rewards might seem like a sweet deal, but many of them have an annual limit as to how much you can earn. In the long run, you’d save more in interest than the cash back you’ll receive or the airline miles you might earn.
Once you have been approved for the credit card, make sure that you stay on top of your payments so your low interest rate does not change.
Most credit card companies charge penalty interest rates upwards of 29.99% if you are late with a payment. If that happens, some credit card companies will switch it back to your go-to rate once you have made a string of on-time payments.
Furthermore, you will also want to watch the balance you are carrying on your credit card. If you use more than 75% of your available credit, it might make lenders think you are in a financial crisis because you are close to maxing out your cards. This can hurt your credit score, which you need to keep healthy for future loans or new credit cards with lower interest rates. Of course, you can solve all of this and never pay interest on purchases as long as you pay off your credit card’s balance in full before the due date each month.
Look for credit cards with better rates now by using the FREE credit card chaser tool!
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