As credit card rates fall, shopping around is best


If your gas station were locked in a price war and selling unleaded for 30 cents more than the station across the street, you'd change gas stations.

And yet, there's a good chance you haven't made the same decision with your credit cards -- even though a rate war has heated up over the past six months and shopping for a new card can be as simple as driving across the street.

Experts have plenty of explanations for this. Americans are baffled about how credit cards work. Many don't realize how they misuse our cards, and they feel helpless to take control. Maybe they simply don't care enough to shop around.

Whatever the reason, one thing is clear: Millions of Americans are paying too much for their credit cards. With industry competition intensifying and credit card rates falling as low as 7.75 percent, experts say even consumers with tarnished credit histories can find a less-expensive card that fits their needs.

"What's happening in the industry right now and for the past six months is unprecedented," said Robert B. McKinley, publisher of RAM Research Corp., a Frederick-based company that surveys 500 credit card issuers that constitute more than 90 percent of the market. "We're seeing real cuts, and they're affecting real people.

At stake for the consumer is cold, hard cash. In 1990, Americans crammed an astounding 1 billion credit cards of all types into their wallets -- most of them charging annual interest rates of 18 percent or more. Of those cards, 273 million were issued by Visa, MasterCard and Discover alone -- an average of nearly three per card-carrying adult.

The nation's ability to issue more high-priced plastic may be unlimited, but our ability and willingness to pay for those cards may not be. As the economic slump has dug in and interest rates have edged lower, there has been a backlash against high-rate credit card issuers.

Most important, consumers have been voting with their pocketbooks and seeking out cheaper cards. Then, in November, credit card issuers got a scare when President Bush urged banks to ease credit card rates and the Senate approved legislation to limit how much issuers could charge. Since then, dozens of issuers have trimmed rates.

However, there is still a debate over whether rates are coming down fast enough. The nation's biggest credit card issuers have resisted lowering their rates, and their market share has grown in recent years.

Instead of cutting rates across the board, some issuers just cutting rates for rate-sensitive customers who pose little credit risk.

Other major card issuers have found ways to give with one hand while taking with the other. In June, Bank of America, the nation's fourth-largest card issuer, introduced a variable-rate card that would charge 9 percentage points over the prime rate. That should translate into an attractive 15 percent rate -- but Bank of American set a 16.9 percent floor.

Even so, experts say, bargains aren't hard to find if you're willing to shop among some medium-sized banks, regional organizations and credit unions.

Experts say the first step is to take stock of your current cards and how you use them. Do you pay just the minimum amount due? If so, shop for a rock-bottom rate. Do you always pay off the balance? A card with no annual fee might save you more money. Do you run a lot of purchases through your card but still pay off the balance? Then, an airline affinity card that racks up frequent-flier miles might be a wise choice.

Next, check out what's available.

Your first call should be to your current card company, experts say. Many issuers have lower-rate cards on the shelf that they will dust off if they think you might take your business across the street.

Then it's time to shop around -- starting in your own backyard.

According to Visa U.S.A. of San Mateo, Calif., about 4,000 of the 6,000 financial institutions offering credit cards charge annual rates of less than 16 percent. They are often overlooked, however, because many are credit unions that serve small audiences.

For some people, a high-rate affinity card might make the most sense. Since 1987, Citibank has offered a card through American Airlines that lets consumers rack up frequent-flier mileage when they use the card.

JTC But such cards aren't for everyone. Not only do they usually charge annual fees as high as $80, but most also charge 18 percent to 20 percent interest.

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