Credit Card Issuers Raising Rates on New Customers

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Interest rate vs money balanceOne of the considerations that many consumers worry about when signing up for a new credit card is the interest rate. The interest rate you end up with can have a great deal of influence on how much you pay over time. The higher the interest rate, the more you pay when you carry a balance. If you are a new customer, though, you can expect to see higher interest rates as you apply for new cards.

According to CNN Money, interest rates are on the rise for new customers. Apparently, interest rates are up three percentage points over the past three years. A lot of the blame is being placed on the Credit CARD Act of 2009. With restrictions that come on raising rates for current consumers, credit card issuers are looking for ways to raise revenue, and new customers can provide a way to start out with a higher interest rate.

Avoid Higher Credit Card Interest Rates

Always, you need to shop around when it comes to your credit cards. There are a number of different terms to choose from amongst credit cards. Interest rates vary from card to card, so it pays to shop around. Remember, too, that the higher your credit score, the better the interest rate you can expect. This means that working on ensuring that you have a good credit score can help you save on interest. Another bonus of having a higher credit score is that you are more likely to qualify for credit cards with high cash back bonuses. Look for cards that will reward you, and you will find that higher interest rates don’t matter quite so much. You can also take advantage of some great balance transfer deals. There are a few cards offering 0% for a few months.

The best way to avoid higher credit card interest rates, though, is to pay off your balance each month. If you don’t carry a balance, it doesn’t matter how high your interest rate is. If you plan your credit card spending around what you already have, and work your credit card spending into your actual budget, then you shouldn’t need to worry about your credit card interest rate. As long as you aren’t carrying a balance, you aren’t paying interest.

High Interest can Ruin Credit Rewards

A good rewards program can provide you with free stuff, as well as provide you with the opportunity to earn cash back. There are a number of competitive rewards programs that can provide you with free travel, and even help you enjoy cash back. Add sign up bonuses to cash back rewards, and it’s not unreasonable to expect to get $500 back in the course of a year. That’s practically free money.

However, if you have a high interest rate, it’s possible that your rewards can be offset. A 14.9% interest rate will overwhelm 3% cash back any day. This is why it’s so important to pay off your credit card balance each month, and avoid making purchases that you can’t really afford just to earn the rewards. If credit card issuers continue to raise interest rates on new credit card holders, it will become especially important to pay off your balance in order to avoid spending more on interest than you earn on rewards.

(Photo: RambergMediaImages)

{ 3 comments, please add your thoughts now! }

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3 Responses to “Credit Card Issuers Raising Rates on New Customers”

  1. Noel says:

    I just got chase Freedom as I am new to this country and would like to build credit history. I got 18.9%. Honestly, I don’t care about the interest rate because as you pointed out, I pay my credit card bill in full every month. I plan to max out on my cashback for the categories I am interested in and will pay back 3 days before the billing cycle so even if I use too much of credit limit, still at the end of billing cycle, my credit use will be zero 🙂 I hope this is how it works.

    • govenar says:

      If by “end of billing cycle” you mean when the statement closes, it’s not necessary to pay it off by then to avoid interest. There’s a grace period, e.g., 21 days, where you won’t be charged interest (unless for the previous statement you didn’t pay off the full balance, in which case they don’t give you a grace period).
      The balance will still show up on your credit report, but that’s ok (and it might be good for your credit score to have a non-$0 balance); the balance on your credit report doesn’t affect the interest you’re charged. Though, if you use a large percentage of your credit limit, that could lower your credit score; in that case paying it down before the statement closes might help.

  2. DachsieLady says:

    I think it would be really helpful if people could (briefly) name the bad credit cards and why they were bad in their experience. That kind of info would be really valuable to people shopping for a card.

    I had a very good record for many years with my CapitalOne credit card, but then, out of the blue, they raised my rate from 7% to 12%. This was during the time that the congress was deliberating on the Credit Card Act of 2009. I could not get CapitalOne to keep my rate down and in addition, CapitalOne started playing some very odd games with me in trying to hit me with fees etc. So I tried to close my account. I tried in writing and by phone and kept good records. They would not close my account and kept calling me about 12 times per week with various kinds of solicitations.

    I finally got the names of the U S Senators and the top committee consultants on that bill in congress and I wrote my story and sent copies to all involved, as well as to the top person in the main corporate office of CapitalOne. That did the trick. I think sending it to Senator Carl Levin was the real kicker.

    I got a phone call from the secretary of the top CapitalOne person and I told her I would send her a letter and tell her exactly what I wanted done and that I did not want to handle any of this by phone and that I expected to receive confirmation in writing that my requests had been granted. They did exactly what I requested – closed my account immediately and stopped forever the phone calls.

    Sorry this may be a bit off topic.

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