Credit Card Holders May Benefit From Re-Evaluating Their Plastic

Is it time to trade in your old credit card?

With issuers changing interest rates, credit limits and other terms and conditions in response to the credit crunch and to new federal regulations, experts say it may be time for borrowers to reevaluate their plastic.

"So many things have been changed in the fine print that you need to catch up with what your card issuer is doing now," said Gerri Detweiler, credit advisor for Credit.com.

Card issuers have sent out notices in recent weeks, informing their customers of the often sweeping changes. Some have sent out formal notices, whereas others are implementing changes after mentioning them in statement stuffers that many consumers toss out as junk mail. If you haven't paid enough attention, Detweiler said, your cards may have become toxic without your notice.

"Whether your fees are being raised or your limits are being cut, this is a good time to see whether the cards you have are good in relation to what else is out there," said Bill Hardekopf, founder of LowCards.com.

But any savvy evaluation of your choices is going to hinge on your credit score and how you use your cards, Hardekopf said.

In today's dicey credit environment, you need a very good credit score to get a new card. And because applying for credit can hurt your score, you don't want to apply randomly. Indeed, several experts now suggest that consumers get their credit scores before shopping.

In some cases, their scores may reveal that they shouldn't shop at all, Detweiler said. They should instead pay off or pay down their credit cards.

"If there's not much chance that you're going to be able to get another card, you might want to get into a nonprofit credit counseling center to see if you could negotiate lower rates with your existing issuers," she said.

That's not necessarily ideal because getting a creditor to accept a negotiated rate is likely to hurt your credit score. But if your score is already too low to apply for a better deal, and if you're struggling to pay, it may be your best option.

The score most commonly used by lenders is called FICO, generated by Fair Isaac Corp. You can access your current score from MyFico.com for $16, but you can also get it free if you sign up for the 30-day free trial offer on the Web site. The downside is that it signs you up for a credit monitoring service that will cost you $90 annually. If you don't cancel within the 30-day period, the freebie turns expensive.

Armed with your credit score, you can better assess your options, said Curtis Arnold, founder of CardRatings.com.

If your score is 750 or higher, you ought to be able to qualify for any card offered, including those that demand "excellent" credit. If your score is below that, concentrate on the cards that will accept "good" risks. Once your score slips under 700, the chance of getting a new card becomes remote, he said.

Your second step is to think about how you use your credit cards.

Cardholders are split nearly evenly between people who carry a balance, at least part of the time, and people who pay off their cards every month. Those who carry a balance need to focus on rates; those who use their cards mainly for convenience should focus on rewards, Hardekopf said.

To find cards in either category, go to LowCards.com or CreditRatings.com. Both sites tell you how good your credit score must be to qualify for any given card. (They use a description, such as "excellent" or "good," rather than a score because card issuers won't reveal details about their underwriting criteria, Hardekopf said. The credit assessments on the sites are based on the experience of the site's users and staff.)

If you're someone who carries a balance and wants to transfer that balance to your new card, you'll need to consider both the rate and the balance transfer fee.

Balance transfer fees can be substantial -- as much as 5 percent of the amount transferred. That fee would boost the amount you owe, which then would be subject to the new interest rate. You'll need to add both the interest and the balance-transfer fee to determine whether a new card is going to pay off. For example, if you were being offered the relatively bargain rate of 7.9 percent, but the balance transfer fee amounted to 5 percent, the cost of the card for the first year would be about 13 percent.

Another potential source of low-interest-rate cards is small local banks and credit unions, which made fewer costly mistakes in the credit heyday and now have money to lend. To find credit unions in your area, go to www.creditunion.coop and click on the "Locate a Credit Union" link on the left side of the page.

It's somewhat more complex to choose a card if you're a convenience user who never carries a balance. That's because you'd probably qualify for more cards. But your best bet is going to hinge on how much you use your card and the type of rewards you prefer.

In the past, many experts recommended airline cards even though these cards often charge annual fees ranging from $50 to $100. However, Arnold and Hardekopf said such cards are less valuable in today's market and pay off only for the savviest frequent fliers who are willing to work the system.

The reason: Several airlines have changed the terms of their frequent flier programs, demanding more points and providing fewer free seats. Those restrictions make the cards less valuable and make it less probable that the value you receive will exceed the cost of the annual fee.

Unless you're an avid fan of books or gasoline or you're part of an alumni group, Hardekopf and Arnold recommend that convenience users focus on cash rewards. They're flexible, ubiquitous and easy to claim, and most issuers don't charge annual fees.

"If you go with a simple cash-back card, you get more bang for your buck and you have more control," Arnold said. "Cash is king in this environment."

Credit Card Holders May Benefit From Re-Evaluating Their Plastic