How To Get A Lower Rate On Your Credit Card
By Liz Pulliam Weston
DEAR LIZ: I recently started a full-time job in my field and am working to pay off my debt one card at a time. I am considering asking my creditors to lower my interest rates to make a daunting task more manageable. Is this a good time to do that, given the current financial crisis? Are creditors willing to lower their rates now? Should I wait until the market improves or until I've been working longer?
What matters to credit card companies – more than ever before – are your credit scores. People with high scores still have access to cheap credit, even as credit card issuers are raising interest rates and tightening lending standards for everyone else.
Your first step is to find out what your scores are. The scores that most lenders use are known as FICO scores, and the only place to get all three of your FICOs (one for each credit bureau) is at www.MyFico.com. The cost is about $50.
If your FICO scores are over 720 or so, you have some leverage to ask for lower rates. If your scores are 760 or above, you're among the most desirable of customers and should be able to drive a hard bargain.
If your current issuers won't lower your rates, you can transfer your balances to other, better cards. You'll find competitive balance transfer offers at sites including www.CardRatings.com and www.Bankrate.com.
If your scores aren’t great, you have much less leverage, although you can always ask for a lower rate or try applying for a lower-rate card. Don't apply for more than one or two, though, because applications can hurt already depressed scores.
If you can’t get a better deal, redouble your efforts to pay off your balances as quickly as possible. The longer your debt lingers, the more it’s going to cost you.
DEAR LIZ: I have a credit card with a large balance but a very low interest rate that’s supposed to last until this debt is paid off. I am diligently working on that, but I’m concerned that the credit card company may decide to substantially raise my interest rate, even if I make on-time payments. I heard there was a way to prevent that by closing the account. Does this really work?
You should know that under current laws and regulations, credit card companies can change virtually everything about your account with just a few days’ notice.
While issuers have been raising their rates across the board, most have been honoring deals like yours, which promise a low rate “for the life of the balance” on debt you transferred or charged during a specific time to the card. (Subsequent charges accumulate at a different – typically much higher – rate, which is why it’s best not to use these cards for other purchases.)
Closing the account now is probably unnecessary and might even trigger a higher rate. Check your agreement or call the issuer and ask.
Please use this experience as a lesson in why credit card debt is such a bad idea. You’ve left yourself vulnerable to the whims of a lender that can change its mind about the rates and terms of your account at any time.
Get this debt paid off and make sure you don’t put yourself in a similar situation again.
DEAR LIZ: Debt collectors are calling me about debt that isn’t mine – it’s my parents’. Is there anything I can do to stop the threatening calls? Could I be held liable for my parents’ debts as the collectors say?
Unless you co-signed with your parents on a loan or are a joint account holder on a credit card, you can’t be held responsible for their debts.
Send the collection agency a letter (certified mail, return receipt requested) pointing out that it is violating the federal Fair Debt Collection Practices Act by harassing you, that you aren’t responsible for the debt and that it should cease contacting you.
DEAR LIZ: If I have an unpaid debt and a collection agency bought it from the original creditor, can they leave it on my credit report forever? Is that legal?
No. An unpaid debt typically must be removed from your credit reports seven years and 180 days from the time the account first went delinquent. There are some exceptions, such as unpaid tax liens, which can be reported indefinitely. But the time limit on a run-of-the-mill debt such as a credit card bill doesn’t change just because the debt changed hands.
That said, there’s no limit to how long a creditor or collection agency can try to collect on a debt. There’s a thriving business in selling, reselling and collecting on old debts. If you pay the debt, and keep the proof that you have, you won’t have to deal with the hassle anymore.
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Money Talk © 2009, No More Red Inc. Liz Pulliam Weston is author of the books “Your Credit Score” and “Deal with Your Debt,” both published by Prentice Hall. She regrets that she cannot respond personally to queries, but questions for possible inclusion in her column may be sent to3940 Laurel Canyon Blvd., #238, Studio City, CA 91604, or visit lizweston.com.
