How To Choose A Low Interest Rate Credit Card?

FAQ : I am looking for a low interest rate credit card. How do I look for one and what should I be looking out for?

Answer : This is a common question I get from my readers, so I shall attempt to write a few notes on this. Firstly, before you attempt to compare credit card rates, check your own credit scores. Someone with a 750 score will get a much lower rate than someone with a 600 score. From that perspective, the rate that is advertised by credit cards is less relevant because you may get a different rate based on your own score.

Secondly, if you carry a balance every month, you should prefereably get a credit card that uses the average daily balance method to calculate monthly balance. Most credit card issuers include new purchases within the billing cycle in their calculations. You should avoid cards which use the 2-cycle average daily balance method if your balance fluctuates or if you plan to gradually reduce your monthly balance and be credit card debt free. This is because your monthly balance will be the average of the two billing cycles and you have higher balances than if you had used a card that does not use the 2-cycle method. For a more detailed look at this, you can read my previous article on The effects of the 2-cycle average daily balance method on your monthly balances.

The next factor to consider is whether your credit card uses the daily periodic rate or monthly periodic rate. This is often an overlooked factor. Assuming two cards with the same apr, the card that uses the monthly periodic rate will have a lower effective interest rate than the other card that uses the daily periodic rate. This is due to the compounding effect. Check out the article I wrote on How to calculate your effective interest rate on your credit card.

The next thing to look out for is the grace period. Previously, most credit card issuers gave you a grace period of 25 days. The grace is the number of days you are given before an interest charge is imposed if you do not carry a balance. These days most credit cards have a 20 days grace period although there are still cards which give you a 25 days grace period.

The last thing to consider is whether a credit card has any annual fee. While most credit cards do not have annual fee, some cards like the Pulaski Bank Credit Card have very low interest rates, 25 days of grace period, uses the monthy periodic rate, but has an annual fee. Other cards like the Bank of America Rewards American Express Card has a very low interest rate, no annual fee, 25 days of grace period but uses the daily periodic rate.

To sum up, if you are looking for a low apr credit card,

# Do not get a card which uses the 2-cycle method to calculate your monthly balances

# Try to get a card which uses the monthly periodic rate rather than the daily periodic rate

# If possible, look for a card which gives you 25 days of grace period