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American Homeowners Association



Shuffling Cards to Improve Credit

Financial services are always looking for new customers. If your credit is decent, your mailbox is probably full of credit card offers shouting "low- introductory rate" or "no annual fee" in giant type. Don't throw them away! Take advantage of the best deals to lower your interest costs and improve your credit rating.

Introductory interest rates are hovering in the single digits for many credit cards but there's a catch--the rate expires usually within a year or six months, and then skyrockets up to the high teens. It's funny how the credit- card company continues to send the same old bill. Unless you're paying attention, you won't notice the interest rate just ballooned at the bottom of your statement. But your debt expense will have inflated in a big way.

Pay close attention to that date and apply for another card, prior to the low- interest rate expiring, that allows you to transfer the balance from your current card. It's a card shuffling game and the best interest rate wins. If you don't like changing companies, call your current card company before the rate expires and threaten them with canceling unless they continue offering you a competitive rate. Sometimes they'll agree.

If you're smart, you'll use the lower rate to pay off the card and decrease your debt. But there's another reason to maintain more than one card--improving your credit rating. Your credit rating is based on a scoring system that looks at all your pieces of credit, high balances, low balances, good and bad histories. A card with a fat balance pushed to the credit limit will be assigned a higher number by the computer reading your history. But the consumer with the same debt spread over several cards will score better. It's the same debt showing up in several lower balances instead of one big balance. Go figure!

The rationale is you're a better risk if you're not pegging your cards to the limit. Of course, maintaining several cards complicates the interest-rate juggling act, and means more checks to write each month. But it's one tactic to consider if you're applying for a home loan and want your credit to look its best.