You’re likely familiar with credit card interest rates, but it can be confusing to choose a card based on those big, bold numbers – especially with annual fees, introductory rates, and balance transfer offers.
But like so many other financial decisions, it pays to dig deeper than just the initial number, to make sure you’re making the best choice for your needs. Here’s how to get the best rate, plus what else to be on the lookout for.
Getting the best rate
The interest rate you get on your credit card is determined by the range set by the card issuer and where you fall in that range, based on your creditworthiness. Your credit score is a big factor in determining your creditworthiness; so while shopping around for credit card options, keep your credit score in mind. (You can get a free copy of your credit report at AnnualCreditReport.com.) Note that applying for multiple cards can sometimes cause a temporary dip in your score.
Also, carrying balances on several cards – especially if they’re being maxed out – can cause another hit to your credit rating. If that’s occurring, talk with a specialist at SAC Federal Credit Union to develop a debt reduction plan that works for your budget.
“Getting one credit card with a modest limit is helpful, but be careful about multiple lines of credit because that can make financial management more challenging,” says Julie Bruning, Vice President of Consumer Lending at SAC FCU.
For an in-depth look at credit, and how you can improve it, download our free e-book: The Building Blocks of Credit.
Check the fine print when it comes to interest rates. Some cards carry a stunningly low introductory rate – for example, 1.9 percent or even lower – but it’s only for a certain time period, such as six months.
Other cards might offer that rate for balance transfers, but be careful to use that strategy only for debt consolidation and quick pay-down. Credit cards often have much higher interest rates for new purchases.
Some cards offer a slightly higher interest rate in exchange for “points” that can be redeemed for things like merchandise, statement credit, or event tickets. These cards can net you some perks if you pay your balance in full every month. However, if you do carry a balance, that slightly higher interest rate will cost you and cut into any benefits.
Credit cards can be useful tools when it comes to managing your financial health, but like anything you might buy with them, it pays to shop around for the best deal and to consider what you really need.
What do you consider when shopping around for a credit card?
Want more ideas for handling debt and controlling your finances? Download SAC FCU’s free e-book, The Building Blocks of Credit.