1. Determine the “health” of your credit score.
The types and terms of credit card deals you qualify for depend on the strength of your credit score.
2. Examine your payment record over the past 12 months.
Have you made all payments on time? Have you missed a payment or two? While you can’t change the record, knowing what the picture looks like will help you find the right account when you compare credit cards.
3. Consider the number of inquiries on your credit report in the past six months.
Understand that, should you have many inquiries in recent months, new, low interest credit cards may be hard to find. Card issuers often become “skittish” about potential other new credit card or loan accounts that haven’t yet been reported.
4. Remember other loans you’ve co-signed for sub-prime family or friends.
Your thoughtful offer to co-sign for a family member with hardship or inconsistent financial responsibility may haunt you when examining credit card rates. Hopefully they have kept up their payments, because their record becomes your record on your report.
5. Evaluate your pattern of use of credit cards, particularly the volume of credit you use.
If you typically use your credit cards for all purchases, you might want to lower the volume for a few months before you apply for that “perfect” credit card rewards account. Perceived over-use of your cards makes it more difficult to get better accounts.
6. Analyze the number, if any, of sub-prime loans you have open.
Be aware that most lenders are aware which open references are sub-prime accounts—high rate credit cards, secured cards, or other loans. They also know that you are paying high interest rates and that you probably had a former financial or credit problem. As you compare credit cards to find better terms, understand that some card issuers can be reluctant to give you new accounts with this status. Note: You might have a sub-prime account without knowing it.
For example, your favorite furniture store has a great sale on that new couch you’ve been wanting. They’ll even give you another 10 percent off if you open and use their store credit card. You take advantage of this deal and find that their store card is issued by a classic sub-prime lender.
When you seek balance transfer credit cards, the lender sees the name of the store card lender and assumes it’s a sub-prime account. Always ask a store about the lender they use for their store credit cards.
7. Consider your employment record, particularly “gaps” in employment and number of job changes in the past two years.
Similar to their concern with sub-prime accounts, card issuers can become queasy if you have obvious employment gaps or many job changes. They worry about the consistency of your income—and, of course, your ability to repay your balance.
8. Examine the number of “mature” credit card accounts you have.
Lenders and credit bureaus consider your “debt utilization” factor as part of your credit score. Historic good payment histories represent around 15 percent of your score. This is a good thing—unless you cancel some older accounts before you apply for new ones.
As they drop off your credit as open accounts, your score goes down and your “debt utilization” factor gets worse as you no longer have access to that credit. This is not a good thing when you seek new, low interest credit cards.
9. Analyze your use of cash in lieu of high or low interest credit cards.
You are probably aware that you must have credit to get credit. If you’ve been conservative lately, paying for most purchases in cash, while keeping your other credit cards buried safely in your wallet or purse, you may make it difficult to get new accounts. Keep using your cards, even for minor purchases, to maintain a historic payment record.
10. Check your current credit report for errors, mis-postings, and correct recording of payments.
The incidence of credit report mistakes continues to be high. Even an account from someone else with a good payment history could damage your credit score by inflating your level of unsecured loans. Check your credit report at least once per year to identify and correct any errors.
Taking these actions and precautions is easy and cheap. It’s almost like preparing properly for a job interview. You want to be ready to present yourself in a glowing light. Preparing your credit report and financial picture in its most positive display helps you get the low interest credit cards you want.