If you’re looking to add another credit card to your mix, it is important that you choose wisely. Some people apply for any credit card and they don’t pay attention to the interest rate on these cards. This isn’t a huge issue if you pay your balances in full every month, as this approach can help you avoid interest charges (providing you pay the card within the grace period).
However, if you carry a balance from month-to-month, finding a low-rate credit card is crucial to saving money.
Here are three simple tips for finding a low-rate credit card.
Apply for a credit card through a credit union
If you receive tons of pre-approved credit card offers in the mail, you may be tempted to go with one of these offers. However, if you’re a member of a credit union (or eligible for membership), research these rates before applying for any other credit card.
Credit unions are nonprofit financial institutions. Because they don’t have stockholders, credit unions can typically afford to pay higher rates on checking and savings accounts, and offer lower rates on mortgages, auto loans and credit cards.
Check rates offered by your credit union, and then compare these rates with offers you receive in the mail.
Clean up your credit history
You can get approved for a credit card with average or fair credit, but you won’t get the best interest rate on the credit card. If you’re applying for a new credit card and you’re interested in getting a low rate, you need to clean up your credit history.
Credit card companies review credit reports before issuing a new card. As they review your credit report, they’re able to see the number of accounts in your name, your current balances, as well as your payment history. If there are issues, such as high balances and lateness, one of two things might happen.
The creditor may outright reject your application, or they might approve your application, yet charge a high rate. Cleaning up your credit history prior to applying for a new credit card is the best way to ensure a low rate.
Start by paying more than your minimums each month and do this consistently until all balances are under 30% of your credit limit. Since balances make up 30% of your credit score, eliminating debt gives your FICO score a boost. Additionally, always pay your bills on time.
Ask for a rate reduction
But what if you already have a credit card, and you’re basically happy with the card? Replacing this credit card with a different one might result in a better interest rate, but you may not be satisfied with the new card terms. In this situation, you’re better off keeping your existing credit card and asking your current card company for a rate reduction.
Asking for an interest rate reduction is easier than you may think. If you always pay your credit card bill on time and you have a good credit score, your credit card company is likely to oblige your request, especially if you’re thinking about taking your business elsewhere.