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5 Questions You Should Ask About Your Credit Card Rates

May 23, 2010

By Barbara Marquand | Money Rates Columnist

Unless you know for certain you'll never carry a balance, one of the most important things--if not the most important thing--to look for when shopping for a credit card is a low interest rate.

But there's more to credit card rates than you might think. For one thing, there are different rates for different uses, and varying rates for borrowers with different credit scores. Ask yourself these five questions to make sure you know what you're getting into when you apply for best low interest credit cards 2012:

1. Low-Rate Credit Cards: What Happens After the Introductory Period?

A lot of credit cards boast low introductory rates in large type to get your business. But what rate will you get when the promotional period ends? Read the small print to find out.

2. Is the Credit Card Rate Fixed or Variable?

Most credit cards now offer variable rates tied to an index, such as the prime rate. Your rate equals the index plus a margin charged by the credit card company.

Under new federal regulations, the issuer can't hike the margin it charges on new purchases during the first year of an account, and it can't increase the margin at all on existing balances unless you're more than 60 days late on payments. But a variable rate can still fluctuate if the index changes--and if the index is low today, chances are your variable credit card rate has nowhere to go but up as the index rises to historic averages or higher.

3. What About Cash Advance and Balance Transfer Rates?

Most credit card companies charge a higher interest rate on cash advances than on purchases, and some charge a lower rate on balance transfers than on purchases, at least for a certain period of time. Make sure you understand the different rates for all the ways you plan to use your zero balance transfer credit cards.

There is no grace period for cash advances, and both cash advances and balance transfers carry fees.

4. How Much is the Penalty Credit Card Rate?

Credit card companies can hike the interest rate if you're more than 60 days late on payments. Check out the penalty interest rate--often close to 30%--as a little reality check to remind you to pay your bills on time.

5. How Will My Credit Score Affect My Rates?

Those low rates you see advertised are great--as long as you can qualify. Card issuers often offer tiered rates, with the lowest rates reserved for consumers with the best credit histories and the highest rates for those with lower credit scores. That's why advertisements boast rates "as low as" certain levels. If you have a short or less-than-perfect credit history, beware that you might not get that lowest rate. Look at the terms and conditions to see the other rates offered.

Even if you don't think you'll carry a balance, it's still a good idea to check out interest rates as you go shopping for credit cards. You never know when an emergency might arise and you'll need a credit cushion for a few months.

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