Fixed Rate Credit Cards are Better Than Floating Rate Credit Cards

A Credit Article Contributed by Kris Griebe

Why Would I Choose a Fixed Rate Credit Card over a Floating Rate Credit Card?

Fixed rate credit cards have advantages and disadvantages when compared to floating rate credit cards. Some are obvious, some are not, but in the end, the fixed rate card will provide you the stability and reassurance that is necessary to properly manage your credit.

A floating rate credit card might be a card with a low starting introductory rate. This "intro rate" might be substantially lower than that of another credit card. However, after the grace period is up, you will find that your interest rate has risen dramatically, possibly even higher than the competing fixed rate cards! On top of this, the rate it has risen to may be subject to change.

On the other hand, a fixed rate card will have an APR that is always the same, always consistent. You will never have to worry about getting your bill and finding you owe more than expected because of a change in the APR of your credit card. This provides you with the stability needed to calculate your debt, so you can more accurately manage your payments.

How Will I Know If My Credit Card Has a Fixed Rate?

When you are reading the information about the credit card, find the portion that discusses the APR, or "annual Percentage Rate". This is the interest rate which you will pay on any purchase made with your credit card. If your credit card has a fixed rate, you will see the word "fixed" somewhere around the APR percentage. It might say something like "18% Fixed APR" or "Fixed 18% APR". This means that your APR will not change over time, no matter what happens. A floating rate credit card will not say this, in fact, it may say nothing. It might just say "18% APR".

It is important to remember that just because it does not say fixed, does not mean it isn't fixed. If you are unsure, it is best to contact the customer service department of the credit card company, and ask whether your APR is fixed or not. You can also contact them before you apply for their credit card to find out which cards have fixed APR's, and which do not.

But Wouldn't I Be Able to Get a Lower Rate with a Floating Rate Credit Card over a Fixed Rate?

Yes, you might be able to. It basically amounts to gambling. You are hoping, with a little luck, your APR might drop below that of the fixed rate card you were going to apply for. But, the token has two faces. It could also rise, meaning you will be spending MORE money on your interest rate. Some people are comfortable taking the chance, or will always pay the full balance which means they won't pay any interest.

If you will not be paying off the full balance each month you may be better off finding the lowest possible fixed rate APR, as this will guarantee you the predictability needed to accurately manage your finances.