Image via Wikipedia
If you have any creditors who won’t budge on cards with sky-high interest rates (perhaps because you’ve missed a payment or two), be willing to switch the balance to a new card, if you can. To find good rates, call local banks, visit www.cardratings.com or www.cardweb.com or log onto www.bankrate.com.
The Benefit of Comparison Shopping
I love these sites because they really empower consumers who are willing to comparison shop, which can really save you money and help you get a tailored credit card that addresses your circumstances. For example, at CardRatings.com, an award-winning website, you’ll find helpful articles on everything from how to educate your child about credit cards to credit cards that make the most sense for students or small business owners. The founder of CardRatings.com is Curtis Arnold, the author of How You Can Profit from Credit Cards: Using Credit to Improve Your Financial Life and Bottom Line. Arnold’s CardRatings.com also puts out a free email newsletter that includes reviews of the best rated cards.
At CardWeb.com, the company breaks credit cards down into 10 categories, allowing you to search for cards that fit your particular needs. The 10 categories are:
- Low rate (ranked by APR)
- Low Intro/Promotional Rate
- No Annual-Fee
- Premium (gold, platinum, etc.)
- Reward (gas, travel, cash-back, etc.)
- Secured (deposit required)
- Business
- Student
- Pre-paid/Gift Cards
- Smart Cards
You can click on a card that interests you, and CardWeb.com tells you key information about that card, such as what the APR is, whether or not an annual fee is imposed, and how many days grace period you’ll get.
Meanwhile, Bankrate.com gets a big thumbs up for its simplicity and user-friendly format for credit shoppers, as well as for the web site’s vast assortment of helpful personal finance information.
At Bankrate.com, you can do things like check interest rates in your particular state, pose questions to the site’s Debt Adviser, or bone up on the latest tactics for handling your credit by reading Bankrate’s special sections on “Debt Consolidation,” “Credit Scoring,” and “Problem Credit.”
Warnings about Obtaining New Credit
One caveat, though: I don’t recommend opening up a slew of new credit card accounts – even if you get multiple teaser offers with initial low interest rates. Opening up too many accounts at once can actually hurt your credit score, for two reasons. For starters, remember that length of credit history is one factor (approximately 15%) in determining your FICO® score. Generally speaking, the longer you have been managing credit, the more positively that influences your score. So if you open several new accounts, the average age of your accounts will decrease, possibly lowering your score.
Additionally, you don’t want to have too many inquiries on your credit report. While you’re shopping around for a better rate, try to do it all within a 14-day period. Fair Isaac says that it counts multiple inquiries made around the same time frame – say, for a new credit card or a new auto loan – as one single inquiry, so as not to penalize consumers who are comparison shopping. Also, your FICO® score ignores all inquires made in the 30 days before scoring, just to ensure that your score won’t be lowered as a result of you hunting for the best deals. Moreover, some of the latest versions of FICO® scoring software count auto and mortgage inquiries within a 45-day period as one inquiry. Still, to be on the safe side, it’s probably best to shop around for that new car or new home within a 14-day time frame, because you can’t be sure that your lender has the most up-to-date FICO® scoring software.
It’s also important to realize the limitations of inquiries. “Hard” credit inquiries occur when you apply for credit (such as a credit card, auto loan or mortgage) and the bank pulls your credit file. This “hard” inquiry will still stay on your credit report for two years. The good news is that a “hard” inquiry only counts against you for the first 12 months. After that, it’s not taken into consideration when calculating your FICO® score, according to John Ulzheimer of Credit.com. Research from Credit.com, which helps people manage and improve their credit, suggests that you can lose as many as 55 points if you accumulate too many inquiries. The flip side, Ulzheimer says, is that “if you perform flawlessly, you can earn as many as 55 points. Most people will fall somewhere in between.”
Another insider tip: don’t believe it when people say that getting rid of your credit cards will improve your credit. “Closing your credit card accounts almost never helps your score and most likely will hurt it,” said Fair Isaac’s Ryan Sjoblad.
Here’s the bottom line: Don’t open a barrage of new credit card accounts. But having one new account with a single digit interest rate – or perhaps a 0% offer for six months or a year – can save you big bucks. Also, don’t just close out or cancel all your old credit card accounts, which, as noted, might reduce your credit score.
Next – Day 7: Always Exceed the Minimum Payment Due
