Low Interest Credit Cards - Scam Or Benefit?

Low, as low as zero, interest on a credit card sounds attractive. Who
wouldn't want to borrow money and pay it back at leisure with no 'penalty'?
But what sounds like honey can often be laced with bee droppings.

For those with excellent credit it is indeed possible to obtain a card with
a comparatively low interest rate. Rates as low as 5% are still possible,
though likely not for long. (9%-15% is more common, which is still good for
credit card debt.)

For those with less than stellar credit, a low interest rate offer is more
likely going to be one with hidden clauses.

Look for caps on amounts charged or transferred. Some offers allow the low
rate only on transferred amounts. Other contracts specify limited periods.
(6-12 months is common, 15 months is
possible.) After that time, the low interest rate automatically switches to
the normal APR on any remaining balance.

What is an APR? And what constitutes 'excellent' credit?

APR is an acronym for Annual Percentage Rate. Suppose you charge $100 and
the APR is 12%. Does that mean you pay $12 in interest for the year?
Probably not. The APR is divided up into a monthly rate, 1% per month, and
applied EACH month to ANY outstanding balance.

How good your credit is depends heavily on your FICO score.
(FICO is a number calculated by a secret algorithm that takes into account
total outstanding debt, number and length of late payments, and other
factors.) That number, along with an analysis of your credit report,
containing age, length of credit history, kinds of debt, etc, determines how
the card issuers view your credit worthiness.

For those who pass the 'good credit' filter, there are multiple criteria to
consider.

Do you pay off your entire balance due when the bill arrives?
If so, the APR is irrelevant since companies almost always forego applying
any interest at all. (Note: They're not required to. Technically, interest
charges begin from the date of purchase, not when the statement is created.)

Do you use the card to make large amount purchases, or accumulate large
balances in one month? If not, the difference between a low interest rate
and the normal APR is usually insignificant.

Most low interest cards have 'fine print' limitations. These include limited
time periods, after which the APR increases, caps on credit amount, etc. One
low interest card type, the 'balance transfer', often limits the rate to the
amount transferred. Interest on any new charges are calculated at the normal
rate.

Also, keep in mind that cards actually have more than one APR.
One rate applies to normal purchases, another to cash advances, etc. Read
the contract carefully.

For those tempted to accept the low or zero interest offer, intending later
to switch to another when the offer expires, a word of caution. Switching
cards frequently can harm your FICO.

Every time you apply, a credit report is created and analyzed.
Your FICO is partly dependent on the number of those credit checks
performed. Also, your score is influenced by the length you have held a
particular card. Many cards acquired in a short period is a red flag.

For those with genuinely good credit (680 or higher, in conjunction with
other factors) a low interest card is a deserved reward for responsible
behavior. Most are free of annual charges. And, if you maintain a monthly
balance on a substantial amount, these cards can save you a significant sum.

About The Author: Did you like this article about low interest credit cards?
Mark Williams offers other great tips and advice about credit cards at his
website http://www.abc-of-credit-cards.com