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Finding the best, and worst, credit cards
September 11, 2008
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Consumer Reports recently analyzed hundreds of credit cards and named a dozen that are worthy of consumers' attention - and three to stay away from.
Among the best credit cards for low-rate/low-fee are Capital One Platinum Prestige, Clear from American Express and Iberiabank Visa Classic. The best cash-back cards included Capital One No Hassle Cash Rewards, Chase Freedom Visa and Discover More. Among the best gas cards: Chase PerfectCard MasterCard, Discover Open Road and Hess Platinum Visa.
Three cards to avoid are First Premier Bank (the card's total first-year fees add up to $276); HSBC American DreamCard (which has a steep 15 percent to 22 percent APR); and New Millennium Visa or MasterCard (which has no grace period to repay purchases or cash advances before a finance charge is imposed).
Some economists fear that a wave of defaults from overextended credit cardholders is the next shoe to drop in the mortgage crisis. Now mortgages and home-equity loans are tougher to get, and many people are turning to credit cards to cover expenses. Consumers' credit-card balances are up from $825 billion at the end of 2005 to $962 billion in May. The 30-day delinquency rate is about 5 percent, the highest it's been since late 2002.
All of this presents consumers with troubling trends:
¢ At-risk borrowers are facing tightened credit lines and higher interest rates.
¢ Periods for teaser rates are becoming shorter, and balance-transfer fees are becoming standard.
¢ Fixed rates on cards are as high as ever, despite Federal Reserve rate cuts that have reduced banks' cost of borrowing by 3.25 percentage points since last September.
But CR notes that there are also some bright spots:
¢ Variable interest rates have come down a bit, making the best cards especially attractive and providing relief for people who carry a balance.
¢ Consumers with excellent credit scores can earn lower rates, higher credit limits and good rewards, particularly for gas and cash-back cards.
¢ Some card issuers have eliminated onerous fee structures and interest/ finance charges ahead of proposed legislation and banking rule changes that if adopted would curtail or eliminate many of these gotchas.
As worries about defaults grow, some card companies are lowering credit limits. If that happens to someone, it could bring their balance dangerously close to its limit and ding a credit score, which could set off similar actions from other creditors. Lenders often raise finance rates for customers who default on any of their payments or carry too much debt or simply because the economy is in the doldrums.
Better ways to use a card
Good credit or bad credit, consumers must keep tabs on their accounts. CR offers the following tips on how to get the most out of a credit card:
¢ Use credit wisely. If a consumer has a lot of high-interest debt, he or she should find a card that has a 0-percent-interest transfer offer and no transfer fee.
¢ Open the mail. Card-issuer letters could look like advertising, but they also could be a notice of an increase in rates or a reduction in credit limit. Issuers often provide an opt-out clause, allowing customers to stop using the card and pay off the existing balance under old terms.
¢ Contact the lender. Cardholders who are dissatisfied with account changes or errors should call the card issuer and ask to speak to a manager or customer-retention person.
¢ Steer clear of traps. Federal banking regulators are pushing for rule changes that could take effect as early as next year. Some current practices that could be eliminated are raising rates on existing balances and applying payments to the lowest-rate charges (such as balance transfers).
¢ Pick the right card. Consumers should select the right card for the type of borrower they are. CR also found that smaller issuers including credit unions and community banks are worth checking out for various interest-free offers.
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11 September 2008
at 5:25 a.m.
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poolside (Anonymous) says…
Interesting. I recently had a dress card send me a letter saying that the were changing how they would assess interest. I had 30 days to close if I disagreed. They were going to start assessing interest daily instead of once a month. and as per usual they would assess on the whole bill which included interest. So they were assessing interest on interest-DAILY! To me that was over the top. I closed.
11 September 2008
at 8:15 a.m.
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consumer1 (Anonymous) says…
Personally I think Cap one is the worst card I have ever had.
11 September 2008
at 10:38 a.m.
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jakeoliver84 (Anonymous) says…
First Premier Bank sucks. I thought I had read all the fine print and understood exactly what I was being charged, but when I received my card it was already practically maxed out. Stay away from First Premier Bank, they are thieves!
11 September 2008
at 10:55 a.m.
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coltrane (Anonymous) says…
the best are attached to credit union accounts.the worst?mbna, citibank, first choice
11 September 2008
at 11:02 a.m.
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oldvet (Anonymous) says…
The best card to carry… The one you pay in full every time you get a statement.The worst one… Any card where you carry a month-to-month balance…
11 September 2008
at 11:03 a.m.
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Haiku_Cuckoo (Anonymous) says…
Don't get caught up in the credit card trap. If you have to pay for it with a credit card, you obviously can't afford it.
11 September 2008
at 11:29 a.m.
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lubyloo (Anonymous) says…
I pay for almost everything with a Discover card to get the cashback (which isn't a ton of money — like $500/year — but every little bit helps) and pay the full balance every month, so I never pay them any fees/interest. Besides the cash back, it's also nice because it the monthly statements document my spending so I see how I'm spending my money. If you do this though, you have to be disciplined so you don't overspend.
11 September 2008
at 12:17 p.m.
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tvf2k (Anonymous) says…
“The best card to carry: The one you pay in full every time you get a statement.The worst one: Any card where you carry a month-to-month balance:”Anything else is posterboard material for why Americans are so far in debt. We used to make fun of banks that gave away toasters when you opened an account, but we celebrate credit cards that apply glitzy marketing to encourage you to carry revolving, unsecured debt. Do a Google search on the DOLP method if you carry multiple cards with balances and get out from under this scam!
11 September 2008
at 12:21 p.m.
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rachaelisacancer (Anonymous) says…
Jake - Me too. It took three months to actually be able to use the card after all the initial fees were assessed and paid off.Unfortunately, because of bad credit and the current state of economic affairs, many people can't get any credit unless its from companies as poor as First Premier Bank.
11 September 2008
at 12:35 p.m.
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MaryKatesPillStash (Anonymous) says…
Thank you for that tip, tvf2k. I will print off that first article and follow the rules.Unfortunately, I am one of the Americans who carry thousands and thousands of debt on credit cards. It's awful, and there isn't a day that goes by when I'm not freaking out about it. I put myself through 4 years of college and 2 years of grad school, AND took out student loans AND worked 40+ hours a week. Still, crap came up and I had to charge it. It's incredibly scary and I can't wait to unbury myself. I can't even fathom that I will spend the next 5 to 10 years trying to pay off almost $60,000 of student loans and credit card debt.