Your New Clout In Choosing A Bank Card

Ever since Washington took up the question of credit-card rates last fall, consumers have been on the march. Galvanized by the congressional debate over lofty bank-card rates and President Bush's own remarks that he would like to see credit-card rates come down, cardholders have been demanding an end to 19.8% interest rates now that the prime rate banks charge corporate borrowers has slipped to 6.5%.

Finally, consumers are getting their way. The most telling success was Citicorp's announcement on Apr. 16 that it would reduce rates for roughly 9 million cardholders who have been good customers. Beginning in June, the nation's biggest bank-card issuer will lower rates to 15.9% on new purchases, from the 19.8% that has prevailed through the '80s. Gold-card users will pay 13.9%. Other big banks are bound to follow Citi's lead.

CHOSEN FEW. But before you cut up your existing plastic and apply for a low-rate card, consider a couple of key questions. Remember that not everyone can qualify for bargain-rate cards. In Citi's case, the lower-rate offer is open only to those who have had a Citi Visa or MasterCard for a year or more. Then again, you might not even need a lower-rate card.

The first consideration before selecting any card is your bill-paying habits. If you're like the 30% of the population who pay off their credit-card bills in full every month, a no-fee card makes more sense. Rates are secondary. The average fee for a standard bank card runs $17.24. Gold cards are higher, at $31.50. And the fees can be substantially higher on some very-low-rate cards.

For those who fall into this thrifty category, there are scores of issuers around the country who offer free cards (table). Most are less well-known than big issuers such as Citi, but their versions of Visa and MasterCard are readily accepted everywhere. Consider Security Bank & Trust of Southgate, Mich. It still charges a high 18%, but that shouldn't matter if you pay the bill off each month.

GRACELAND. American Telephone & Telegraph Co., which popularized the free-card concept, is once again offering a no-fee version. But it has limitations. For customers who transfer at least $1,000 owed on other credit cards, AT&T will again offer a no-fee-for-life card. The only catch is that you must use its Visa and MasterCard, dubbed the Universal Card, at least once a year. The offer expires June 15.

Consumers who apply and are approved will receive checks from AT&T to pay off their other card balances. There are no transaction fees. While AT&T's offer isn't a bad deal if you intend to pay off your balance, keep in mind that AT&T's current rate is 16.4%--not the best available.

Regardless of which no-fee card you select, pay attention to the grace period. Most credit-card issuers offer 25 days in which there are no interest charges. Generally, you lose this benefit if you carry over a balance to the next month. Even new purchases are then subject to finance charges.

Still, if you're like the 70% of cardholders who do run a balance each month, grace periods and annual fees aren't primary considerations. It's the rate that counts. Bank-card rates have declined, but they're still fairly steep compared with what banks pay for money. The average rate for a standard Visa or MasterCard stands at 18.59%, vs. 19.05% a year ago.

Gerri Detweiler, a director of Bankcard Holders of America, a consumer group, says someone who charges an average of $2,665 a year and pays only the minimum every month can save $410 a year by switching to a card with a rate of 8.5% instead of 19.8%. If you're a heavy card user, the savings mount.

There are many low-rate cards around the country, and many accept applications nationally. An increasing number of issuers are offering variable-rate cards that move in tandem with a bank's cost of funds, which has been declining. Variable rates may be adjusted monthly or quarterly. Wachovia Corp. offers both a 9.4% variable rate for $39 a year and a fixed rate of 14.98% for $25. The lower rates that go into effect at Citi in June are based on a variable-rate formula. For example, the rate on the standard card is 9.4 percentage points above the prime.

BUSY SIGNAL. Obtaining a bargain-rate card isn't a snap, though. Lower-rate card issuers are choosier about their customers because they can't afford high delinquency rates. Robert B. McKinley, publisher of RAM Research Corp.'s CardTrak, a Frederick (Md.) newsletter, says only 15% of applications for cards charging 11% and lower are approved. The acceptance rate improves as the rate increases. At 19.8%, the rate is upwards of 40% to 45%.

Cards with rock-bottom rates have other drawbacks besides acceptance. Some of the best bargains are available from issuers in Arkansas, where state usury laws limit card rates to five percentage points above the Federal Reserve discount rate, now 3.5%. Banks there, such as Simmons First National Bank of Pine Bluff, are being flooded with calls. With an alluring 8.5% rate, Simmons has been averaging thousands of calls a day. And out-of-state consumers may have to wait up to 90 days to have their applications processed.

What's more, bargain-rate cards can have much lower credit limits. The average balance at Simmons is $800, McKinley says. Nationally, the average balance for bank cards is $1,400.

Then there's the question of service. Many cardholders have become accustomed to the luxury of 24-hour, toll-free numbers to check on their balances. Smaller issuers generally limit account inquiries to normal workday hours. And don't look for elaborate enhancements, such as purchase protection and travel-accident insurance. Most are bare-bones operations.

One exception is Abbott Bank in Omaha. Abbott's Visa and MasterCard offer the same kind of enhancements available from big issuers. The difference is that Abbott's card doesn't have an annual fee, and it charges less interest than larger banks do. Its variable rate, now 16.3%, is pegged three percentage points below the average rate of the top 10 issuers.

LEGWORK. Once you've decided whether you're a no-fee or low-rate user, deciding on a specific issuer will take a little legwork. The chances that you'll find a bargain-card solicitation in the mail are nil: Most of these banks don't do heavy marketing.

To help you in your search, however, you can write to the Bankcard Holders of America (560 Herndon Parkway, Suite 120, Herndon, Va. 22070), or phone the organization (800 327-7300) for its list of 47 no-fee and low-rate cards. BHA charges $4 for postage and handling. Consumers can also send away $5 for an issue of McKinley's CardTrak, which includes a list of bargain cards every month (Box 1700, Frederick, Md. 21702).

You also might check with your credit union. Many offer no-fee, low-rate cards. And don't hesitate to nag your bank. With banks feeling the heat from cardholders, credit-card terms have become largely negotiable.

If you're a good customer and have other business relationships there, such as checking accounts, certificates of deposit, or a mortgage, some banks may give you a break on interest rates. McKinley says that others may also be willing to reduce or waive fees on a selective basis just to hold onto customers. Remember, as a cardholder, you have a lot of power these days. Don't be afraid to use it.

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