The Cheapest Credit Cards Now

As I noted in my last post, Consumer Action, the non-profit financial education group, has competed itsannual credit card survey, a mind-numbing task that had researchers Vickie Tse, Dennis Wong and Ruth Susswein examining 41 cards from 20 different banks.

Some of the findings are pretty eye-opening. To make up for income that finance companies may have lost because of fee limits imposed by the CARD Act, they have raised rates. So even though the prime rate stayed steady at 3.25 percent in the last year, Consumer Action found that the average variable rate shot up from 13.2 percent in 2009 to 15.06 percent in 2010. (Only one card had a fixed rate, and it's no longer available.) How did banks get those rates up when the prime was static? Well, a variable rate is composed of two elements: a rate tied to an index (the prime rate or LIBOR) and a margin, which is essentially the bank's profit. If your card's margin is 12 percent, and the index is 3.25 percent, your rate is 15.25 percent. If the index rises, so does your rate, and card companies don't have to tell you in advance. And, if the bank decides it wants to boost its margin, it can do so with only 15 days' notice. And that's how a lot of issuers got your rate up into nosebleed levels -- raising the margin. Thanks to the CARD Act, however, the new higher rate applies only to new purchases, not to existing balances.

Consumer Action identified credit cards with the lowest variable rates. Of course, you qualify for them only if you have an excellent credit rating. Not to be too finger-waggy (can't help myself), but, seriously, if you have a poor credit history, you should be concentrating on getting rid of your debts, not on adding a new option for charging more. So if you're in the market for a new card, here are six to investigate.

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