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Credit Card Issuers Raising Rates on New Customers

One 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 [3], 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 [4]. 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 [5]. 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 [6])