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Rising credit card rates: 3 ways to cope

by Barbara Marquand

Credit card rates have been holding steady for some time now. But we all know that it's not realistic that the historically low prime rate will last forever. We've already been seeing credit card rates inching up any time issuers get nervous about the state of lending. Knowing that the days of ultra-low rates are numbered can help us prepare now so we can avoid higher interest rates and fees in the future.

Here are three ways to minimize the impact of rising rates:

Improve your credit score

Your credit score influences the rates credit card companies offer you. Many credit cards feature tiered rates, with the lowest rate offered to customers with excellent credit, and the highest rate offered to customers with mediocre or poor credit. Those rates vary by as much as 10 percentage points, with the top rate in some cases exceeding 20 percent. Check your credit reports through AnnualCreditReport.com -- you're entitled to free copies of your reports once a year -- to make sure they are correct. Follow the credit bureau's instructions to fix errors. Then pay your bills on time and keep credit card balances below 10 percent of your credit limits to maintain or improve credit.

Shop for best credit card rates

Don't jump for the first credit card offer you get. Compare multiple offers online, and click through to the pricing terms to get details. A card may tout rates as low as 11.99 percent, but include higher rates for people with less-than-perfect credit. Read your credit card agreement carefully when you get a new account to confirm your rate.

Pay your balance in full

The interest rate is moot if you pay your balance in full every month. Create a monthly budget if you don't already have one, and charge only purchases in your spending plan. Then pay your bill in full and on time. Avoid using your credit card for cash advances, which carry a higher interest rate than purchases. Even if you pay your balance in full every month, you accrue interest on cash advances because, unlike purchases, they have no grace period.

Although finding affordable credit cards is challenging, careful shopping, budgeting, and account management lessen the blow of higher rates.

Published 04/18/13

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