April 13, 2009 -- Bank of America is the latest bank to announce that it plans to raise interest rates on some credit card accounts. B of A says the move will affect 4 million cardholders -- less than 10 percent of its card customers. Basically, people who carry a balance and currently enjoy a rate of less than 10 percent will see their rate rise.
Citigroup, JP Morgan Chase and American Express had already announced similar moves. You may recall that the Federal Reserve created new rules that will protect cardholders from some interest rate hikes, but those rules don't go into effect until next year. Congress is considering legislation that would impose similar rules sooner, but it's still winding its way through the House and Senate.
So, it's self-reliance time. Here's what you do.
If you receive a notice saying your bank is raising your credit card interest rate, call the customer service number and opt out. Sounds liberating, but there's a catch. You won't be able to use your card to make any new purchases. If you have had the card for many years, you should keep it open because longstanding accounts are good for your credit score. Pay down the balance but don't make any new charges. New charges trigger the new, higher interest rate. If you haven't had the card long, just cancel it. Pay off the balance or transfer it to another card.
There are still banks out there offering zero percent introductory offers for balance transfers. Just be prepared to do some fancy footwork if you are about to do the introductory rate dance. This is a dicey proposition, but it can be done.
Basically, you transfer your balance from one card to another as introductory rates expire. The key is finding cards that offer a low rate, a long introductory period and few fees.
Some credit card companies charge you so much to transfer balances that it wipes out the benefit of the low interest rate. Read the fine print. Make a note on your calendar of when the introductory rate expires and switch to another card before it does. If you fail to transfer before the higher rate kicks in, the bank will charge you that rate on your entire existing debt.
As you shop around for credit cards with low rates, keep in mind that applying for a whole bunch of credit at once can ding your credit score. Soon after college, I was trying to get a better credit card deal, so I found a list of low interest cards and applied for all of them, hoping one would approve me. I was turned down by every single card company! Why? Simply because I had applied for so many at once!
Bankers get suspicious when somebody suddenly applies for a ton of credit, so statistical scoring models take that into account. In fact, "inquiries" about your credit make up 10 percent of your credit score. (Ordering your own credit report doesn't hurt you and unsolicited inquiries when a credit card company is considering offering you a card don't hurt you.) But "hard" inquiries, where banks pull your credit report because you have applied for credit, can shave up to five points off your score.
So, before you apply for a new credit card, find out what your credit score is. Unfortunately, credit scores are not available for free like credit reports are. Try www.myfico.com to learn your true FICO score, developed by industry pioneer Fair Isaac.
If your score is in the high 700s, a few points lost because of a credit application won't matter. But if it's lower than that, every point matters. So, identify several credit cards you are interested in and research what their qualifications are. Then, once you have found one you believe you will be approved for, apply. If and only if you are rejected, apply for another.
Here are some resources to help you find low interest credit cards:
The Federal Reserve surveys credit card companies and publishes their interest rates, etc.
Card Trak is a consumer advocacy group that tracks credit card rates and fees.
Creditcards.com profiles scores of low interest cards.