Low interest credit cards are perhaps the most complicated type of credit card to evaluate. Unlike 0% APR credit cards, where you almost always know the short term rate you are getting and how long it lasts, low interest credit cards are, as Forest Gump would say, like a box of chocolates. And he would be correct, since until you submit an application, you never know exactly what rate you are going to get.
The main issue with most low interest credit cards is that they don’t offer a single rate. Instead, they offer either range based or tiered pricing. With both types of pricing, consumers with the best credit profiles secure the best interest rates and those with lessor credit profiles get higher rates. Unfortunately, these rates are determined during the application process. Thus, the only thing you’ll really know when you apply is that your rate could be as low as X or as high as Z.
Because of the way interest rates are determined, consumers who don’t fit into the excellent credit category generally stand to benefit the most from cards that use range based pricing. With range based pricing, your rate could be any number between the lowest rate, say 10.99% and the highest rate, say 19.99%. Thus, you may not qualify for a 10.99% APR, but you may qualify for an 11.24% APR.
A credit card that uses range based pricing will list the go-to interest rate like this: your APR will be 11.99% to 20.99%. Three companies that use range based pricing are Capital One, Discover, and Bank of America.
Tiered pricing is the most commonly used method to determine interest rates. A credit card application that uses a tiered pricing system will typically state the following: your APR will be 12.99%, 17.99%, 20.99%, or 21.99%, based on your creditworthiness.
With this type of offer, if you fail to qualify for the 12.99% rate, even if it is by a single credit score point, your interest rate could be 17.99%. And if you fail to qualify for that rate, it could be 20.99%.
Ultimately, the key thing for consumers to watch out for are credit cards that advertise a very low interest rate, but have huge gaps between one rate and the next, as in the example above. This is particularly important for people who have good, but not great credit, as they are the most likely to get a significantly higher rate than the lowest advertised APR.
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