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Why 'Low Rate' Credit Cards Are a Rip-off

Credit card interest rates are on the rise. Notwithstanding credit card legislation that promised to protect consumers, surveys of popular credit card offers show that rates have been inching up. In a recent report, the average credit card interest rate topped 14 percent.

As rates rise, many have sung the praises of what are called "low rate credit cards." Although there is no official definition, low rate cards generally comprise those cards that offer rates significantly below the average rate. In today's rate environment, that would mean cards that charge interest of less than about 10 percent.

These low rate cards are often marketed to consumers who carry a balance from month to month. Some of these cards even offer a fixed interest rate, rather than interest that fluctuates with market rates. While these offers may seem like a good deal at first blush, there are several reasons why you may want to think twice before applying for one.

Do you have good credit?

The first hurdle to recognize is the credit required to qualify for a low rate card. Because the rates are low, issuers of these cards look for low risk consumers. If you don't have really good credit (think credit score north of 700), it's unlikely that you'll qualify for a card offering interest of less than 10 percent.

Some of these offers are also very difficult to apply for. In some cases you have to send in proof of income before your application will be considered. As a result, it can take longer to get approved for these cards. In contrast, many cards offer online approval in less than 60 seconds.

No interest beats low interest

Even if you can qualify for a low rate card, it might not be your best option. For those carrying a credit card balance, there are a number of credit cards offering zero percent balance transfers. While balance transfer cards typically come with a fee equal to three percent of the amount transferred, this fee is significantly lower than the interest on low rate cards.

These zero interest offers aren't limited to balance transfers. Many of these cards also offer no interest on purchases for up to 18 months. So even if transferring a balance is not what you need, these no interest offers still beat the low rate cards.

Show me the money

Finally, most low rate cards offer very little in the way of cash back or other rewards. The low rates don't provide sufficient revenue for the card issuer to warrant paying rich rewards. In many cases, these cards offer no additional rewards at all.

In contrast, some of the best reward credit cards offer relatively low rates, 0 percent introductory rates on balance transfers and purchases, and cash back or other rewards. While the interest rates aren't the lowest, the other features of the card more than make up for it.

So as you search for credit card offers that meet your financial needs, keep in mind that the lowest rate offers are unlikely to be the best.

DR is the founder of the popular personal finance blog The Dough Roller, and the credit card review site Credit Card Offers IQ.

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