Need money? Get a credit card checkup

November 04, 2005|by LYNN F. LITTLE

Consumers who compare credit card rates and billing practices can often trim expenses.

Consider personal spending habits and payment preferences when choosing and using a credit card. While interest rates and card policies might change, so might a consumer's preferences. If, for example, a consumer is planning to buy a new car in a year or two, he or she might want to take advantage of a rewards card that will reduce the purchase price. If planning a family vacation, perhaps a mileage card could be beneficial.

When planning to improve their credit history, customers might want to consider these questions:

Can a person have too many credit cards?

There is not a single correct answer to that question. Needs vary. Many people find one all-purpose bank card sufficient. Others choose two cards - one for personal use and one for business use.

But having too much available credit might hamper a consumer's ability to secure a loan. Review credit needs and availability periodically and also prior to a loan application or a major purchase.


Is it possible to negotiate a lower rate on a credit card you already have? Call the toll-free number on the back of your billing statement and ask. Customers who have a consistent payment history might be able to negotiate a lower rate, particularly when the card company becomes aware that a cardholder is considering a lower-rate card with a different bank.

Is changing to a credit card with a lower introductory rate advisable? Maybe. A low, introductory interest rate might result in a short-term savings. Factors to consider include the length of time the introductory rate will be in effect; the regular interest rate; and whether or not the balance on the card at the time of the rate conversion will remain at the reduced rate or be transferred to the higher rate when the introductory rate expires.

Lower rate cards typically do not offer lesser introductory rates. Their consistent low rate might offer a greater savings in the long term.

Is it advisable to add a rewards card that offers cash back, mileage or purchase points in addition to other cards? Personal preferences and financial or other goals (such as travel), can influence this decision. Read the fine print to see if such a card might be advantageous to you.

What is the best way to close an account? When closing an account, notify the credit card company in writing and keep a copy of the notification.

Pay off the balance before closing an account. If unable to pay off a balance in full, wait to close the card until the balance has been paid off or transferred. Card companies sometimes raise the interest rate on remaining balances on accounts that have been closed. Pay off higher rate cards first, but continue to pay on lower rate cards to avoid late or non-payment charges.

APR is short for annual percentage rate (the amount of interest charged per year). Rates can be fixed, variable or tiered, which means that rates change with spending levels. (Example: There might be one rate applicable to the first $500 of purchases and another on anything more than $500.)

The grace period is the interest-free period between the time of purchase and payment date due, after which interest will be charged.

Average daily balance. To calculate this, creditors add the balance for each day of the billing cycle and divide by the number of days in the cycle. The average daily balance is used to calculate finance charges. Some creditors include new purchases when calculating average daily balances, while others compute finance charges from an adjusted or previous balance. Finance charges vary with the method of computation, so read the fine print carefully.

Managing credit effectively can mean more money in your pocket. For safety, carry only credit cards that you intend to use. Store infrequently used cards in a safe place.

Visit the Federal Reserve Board at and click on the consumer information link for more information about choosing and using credit cards and other financial topics.

Lynn F. Little is a family and consumer sciences educator with Maryland Cooperative Extension in Washington County.

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