Low Rate Teaser Tango

Sheryl sure packs a lot of good information into one letter. And she's playing one of the most popular games around. Everyone wants to find the lowest 'teaser rate'. Then when the introductory rate runs out it's time to swap again. I call it the Teaser Tango. But, as in other dances, you'll do much better if you know the steps. And when you're dealing with credit cards the steps aren't in big bold graphics on the floor. They're in the fine print. So let's get out our magnifying glasses and start the music!

We'll begin with Sheryl's first question. When you get a new credit card does that show on your credit report? The answer is yes it does. Your credit report will show all the accounts that you've used going back as far as seven years. Having a few, long-term relationships will get you a higher credit score than if you open and close credit card accounts every year.

Will having many new accounts cause a problem? Clearly it hasn't stopped Sheryl from getting offers for new credit cards. But it could make a difference if she wanted to borrow money for a car or home. Try to keep one or two long-term accounts. They don't need to carry an account balance. They just need to be open.

Another credit report consideration is how many accounts you have open and what's the total combined credit limits of those accounts. If you have eight separate credit cards and each has a credit limit of $2,000 you could conceivably go out and charge $16,000 worth of stuff today and no one would stop you. That can be scary for potential lenders who are deciding whether to give you an auto or home loan.

So when you trade one card for another don't just cut up the old card. Notify the issuer that you want the account closed. That way the unused credit won't show on your report.

Sheryl has also found out about a major 'gotcha' on those low introductory rate accounts. One false move and the music stops! In her case she was a couple of days late with a payment. It happens. But it can be especially painful if you're counting on that teaser rate to lower your monthly payments or help you pay off the balance quicker. Most accounts that offer introductory rates have similar rules. If you're just one day late the entire balance moves to a higher interest rate.

Is it fair? Probably not. But, they do tell you in writing before you open the account so it's perfectly legal. And, yes, I know that no one reads all that tiny print that comes with the offer. The credit card companies know it, too. That's why they put it there.

It's a good idea for everyone to be more careful about getting credit card payments in on time. Most issuers have increased their penalties for late payments. Many issuers have doubled their late fees in the last year or so. And remember, it's not when you postmark the payment that counts. It's when it's received.

If you're considering taking advantage of a teaser rate offer, you'll naturally want to compare rates. Currently you can find rates as low as 4% being offered. Most are will hold the lower rate for 5 or 6 months.

Make sure that the lower rate will apply not only to the balance that you transfer, but also to any new purchases you make during the introductory period. Many cards charge their regular, higher rate for new charges. There's more to consider than interest rates. Don't forget annual fees. Most are $25 or $50 but some issuers don't charge any.

Avoid 'cash advance' charges to move your balance. Some issuers offer a nice rate, but will charge you a couple of percent or more to transfer your balance. They consider it a 'cash advance'. Naturally the lower interest rate is touted in big, bold type. The cash advance charge takes a little more digging to find.

While you're looking at the fine print, don't forget to see what they'll charge you every time you use the card at an ATM. You might not be able to find an issuer without an ATM charge, but by knowing about the cost you can consider cheaper ways to get a little cash.

Finally, Sheryl points out something that can benefit many credit card holders. Sometimes if you call the issuer and ask for a lower interest rate they'll give it to you. Not always, but sometimes. A simple request by phone costs almost nothing and could get you a lower interest charge each month.

So that's the Teaser Tango. If you watch your step you can reduce the amount of interest that you pay on your credit cards. But, watch out. One false step and you could end up in a heap on the floor!

Take the Next Step

• Use a Credit Card Calculator to find out:
  The true cost of paying the minimum
  - What will it take to pay off my current balance?
  - Which is better: Cash Back or Low Interest Card?
  - Which is better: Airlines or Low Interest Card?
  - How much could I save by transferring my balances?

Gary Foreman is a former financial planner and purchasing manager who currently edits The Dollar Stretcher.com website and newsletters. You can also follow Gary on Twitter or on his blog.

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