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Archive for Sunday, September 25, 2005

Shopping around for credit can save money

Card companies’ offerings vary on interest rates, fees, rewards

September 25, 2005

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If you sign up for our credit card now (as the pitches delivered in the mail say), you can enjoy a zero percent introductory interest rate, a stratospheric spending limit, no annual fee, 10,000 bonus airline miles and even cash back.

Sound too good to be true? Well, maybe it is.

First of all, accepting a pitch for credit on a whim probably isn't the best way to manage your finances.

Shopping around for a credit card can save you money on interest and fees. It also will land you a card that matches your everyday and long-term needs.

"A customer's financial lifestyle - how they use credit cards - should determine what card they choose," says Ben Woolsey, senior writer for creditcards.com, a free online credit card search and comparison service. "A lot of them have bells and whistles, but those perks don't work for everyone."

Before signing on the dotted line, experts say, there are a few things everyone should know.

For one, different credit card companies pitch themselves to different customers.

Some have low annual percentage rates but charge for cash advances and make you pay an annual fee. Others offer points or rewards for purchases but carry variable rates and have short grace periods.

When looking for a credit card, think about how you plan to use it, advises David Robertson, publisher of The Nilson Report, a consumer payment systems publication.

"If you pay in full every month, then you can use only one card, maybe have one as a back-up," he says. "People with revolving credit may need a couple cards to reduce, spread out their balances."

If you expect to always pay your monthly bill in full, consider a card that has no annual fee and offers a longer grace period.

If you sometimes carry over a monthly balance, look for a card that carries a lower interest rate.

And if you expect to use your card to get cash advances, you'll want to look for a card that carries a low APR and has lower fees for cash advances. Some cards charge a higher APR for cash advances than for purchases.

"There are different choices that a consumer will need to make on what meets their lifestyle," says Seth Eisen, spokesman for Visa USA. "It's a matter of sitting down and thinking about what makes sense for your life."

Qualifications needed

Credit card companies are going to advertise with their very best rate, but that doesn't mean you'll qualify.

"It makes them look good," Woolsey says. "Once they get your attention, get you in, they will assign an interest rate to you."

When you apply for a card, be prepared to have your credit checked. Your credit history will help decide what interest rate and perks you receive.

If you don't like what they tell you, or if you don't qualify for the card, it's probably worth going elsewhere.

"Really low interest rates, features, rewards are commodities right now," Woolsey says. "If you don't like what you hear, go somewhere else."

One thing that may persuade you to select one card over another is the perks and benefits associated with being a cardholder.

"Generally, you should be getting something extra, because it's available," Woolsey says. "A lot of people are wary of rewards. It's like free money."

By 2009, the vast majority of consumer credit cards in circulation - 85 percent - will offer some sort of reward for its usage, predicts market research publisher Packaged Facts.

Seeking rewards

While some customers simply want a card for shopping, others focus on picking up airline miles, points toward purchases, hotel credits - even cash back.

"Offering rewards have become, and will continue to become, a necessity with credit cards," says David Morris, author of the Packaged Facts study. "It can be overwhelming to the consumer. There's so many to chose from."

With all those choices - 886.2 million credit and debit cards were issued in the U.S. last year - it would be surprising if some people didn't have too many credit cards.

"I've seen between five and six cards per adult in the country," Morris says. "Wallets are saturated with credit."

Credit bureaus say the more cards you have, the bigger risk you are to go into debt and damage your credit rating.

It's a good idea to only keep cards that you'll actually use.

"It's real tempting to apply for store-branded cards," says Robertson of The Nilson Report. "They can be good deals, but not necessarily in the long run."

Unless you're buying a lot of stuff at once and you can really benefit from that 10 percent discount, Robertson advises consumers to think twice about signing up.

Then again, if it's a store you frequently shop at, you may receive additional coupons, bonuses or advance notice of sales and other promotions, he says.

No matter how many credit cards you have, try to pay them off each month - or at least pay more than the minimum payment. If you get a store card, close the account after you stop using it.

Also, always read the fine print - in the application, in your monthly statement or in any other disclosures you receive in the mail. Issuers must inform you about any new terms or changes to your cardholder agreement.

And if you don't like the changes, you don't have to keep the card.

You can always transfer your balance to a new card, or if you have established a good credit history, ask the card issuer to waive the annual fee or lower the interest rate.

"Over my career, credit cards have gone from having an annual fee and an 18 percent interest rate to no fees now and in some instances no interest," Woolsey says. "My overall advice today: Shop around."

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