If your mailbox looks like mine, you get several credit card offers on a weekly basis, many of them saying I am pre-approved. While it might be tempting to simply fill out the form either online or mail that one back to the company, you should be cautious about doing so. Take your time to shop around for a credit card with a great interest rate. Doing so can save you hundred or thousands of dollars in interest, depending on how often you use your credit card and the amount of the purchases you make.
Your credit card interest rate is based on your likelihood of repaying the money you charge against it. You will get a lower interest rate if you have a history of paying your bills on time and have a solid work history. You will have a very high interest rate if you often miss payments. Your overall credit score and debt ratio will also be considered.
Everyone has a credit score from zero to 850. This number is a calculation based on your payment history, the amount of money you owe, and the amount of money you could owe. This means if you have $20,000 available on a credit card it could make your credit score lower than someone with at $5,000 limit. This is because you have the potential of maxing out your credit limit. Another factor to consider is the length of time you have established credit. Your debt ratio is based on the total debt you owe.
To negotiate a credit card with a lower interest rate, you need to do your homework. First find out what your current credit score is. Next find out what the average credit card interest rate is at that time. If you already have a credit card, call the company. Explain that you have been offered a card with a lower rate of whatever amount you want them to lower it to. If you have been a good customer, they are likely to match or beat the competitor’s rate to keep your business.
As we discussed, the potential to max out your credit cards hurts your overall credit score. Keep this in mind the next time you get one of those pre-approved offers in the mail. You only need two credit cards, so why carry around a dozen in your purse? If you are paying annual membership fees on any of them, you are simply throwing your money away.
If you have several credit cards, consider canceling some of them. Keep in mind that your credit score is also based on the length of your credit history. If you have a credit card that has been active for a long period of time do not cancel it as they too could hurt your credit score.
Credit cards are a necessity for many areas of our life including shopping online, travel reservations, and renting a car. Used wisely, they can be useful to establish a good credit history and be a good safety need in an emergency situation. If you plan to get a credit card, remember to take the time to negotiate an interest rate that you are willing to pay. In today’s market, there are so many credit cards available that the consumer has more of a say in setting their interest rate than ever before.