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Maybe It's Time to Switch Credit Cards

If you’re like most credit card customers, you’ve gotten notes from your bank in recent weeks.

Perhaps the card company told you that the interest rate was rising 4 percentage points. Or it cut your credit limit in half. Maybe an annual fee has appeared for a rewards program as part of an “enhancement,” or the travel points no longer yield quite what they used to.

Credit cards
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Credit cards

Why is this happening? On Thursday, the first of a set of new rules went into effect resulting from the landmark credit card legislation earlier this year.

Banks must now provide written notice to customers 45 days before increasing the interest rate or changing the terms on a card. So banks raced to get out in front of that requirement, making a bunch of changes before Thursday, lest they have to give you a month and a half of warning.

Irritated by the changes? Inclined to take your business elsewhere now? This is exactly the right instinct, since plenty of people can still get a better deal from a different card. Fee-free balance transfers still exist. And banks have barely touched the most lucrative rewards programs — and wouldn’t dare fiddle too much given the revenue they generate.

The best revenge is a better card. Here’s how to find one.

IF YOU HAVE CARD DEBT: If you pay your bill in full each month and are only trying to maximize rewards, you can skip this section. If you carry a balance, please (please) stop. If you lack self-control and want to put a stranglehold on your spending, use a debit card instead. Once you have the debit card, ask your bank to turn off any overdraft protection that would allow you to spend more at the store than you have at the bank.

If you carry debt part of the year because of irregular income — or have changed your habits but are still paying your way out of the hole — there still may be ways to pay less interest. Start by calling the card company, telling it that you’re considering leaving and asking for a better deal. The worst thing that can happen is that it will say no.

If your bank turns you down, start shopping. Sites like CreditCards.com, CardHub.com and CardRatings.com can give you a sense of your options. But don’t stop there, because the sites may not list all of the best deals. Credit unions often offer lower interest rates; find one that will accept you at Creditunion.coop. Also, anyone can become a member of the Pentagon Federal Credit Union by paying $20 to join the National Military Family Association.

Why do this? PenFed lets you transfer balances to its card and pay 2.99 percent interest forever once you pay a balance transfer fee of 2.5 percent of the debt you move over, and as long you make your payments on time. (Links to this and other deals and sites I’ve mentioned are in the online version of this column). The Finance forum on FatWallet, which is a must-read for the credit card cognoscenti, maintains a list of some of the remaining credit cards that still charge nothing for balance transfers and let you pay zero percent for at least a few months.

One big caveat: You’ll need a very good credit score to have your pick of cards and to get a high enough credit limit to be able to transfer your entire balance. John Ulzheimer, who worked in the credit scoring and data industry for years before becoming president of Credit.com educational services, said the number was 740 these days. FICO, the company that created the formula that underlies the credit scores of the same name, reports that 40 percent of the population has a score over 750 and 18 percent lands between 700 and 749.You can buy two versions of the FICO score from the company’s Web site.

Alas, card companies aren’t in the habit of plastering their minimum FICO requirements on their Web sites. But you can call them and ask. “In many cases, this isn’t national security, and they’ll tell you,” Mr. Ulzheimer said. Inquire about the credit limit you can expect given your score, or at least, try to find out the range of possibilities.

Also, keep in mind that if you get a new card, the issuers of your old card may cut your credit limit, which can hurt your credit score. They’ll argue that you’re a greater risk, since you have more available credit lines all of a sudden, and that you could run up a bunch of debt quickly before declaring bankruptcy. To you, however, it might look like punishment for fleeing.

If you’ve tried a few times to apply for a card and failed, it’s probably best to stop, since the inquiries on your credit report that result from repeated credit applications can hurt your score further. Better to pay down the debt on the old card as quickly as possible. You can improve your score that way since you won’t be using as much of your available credit, and you can save the next section of this column for once you’re out of debt and your score has improved.

IF YOU WANT CASH BACK: Let’s start with my first principle of rewards cards. Whether you’re seeking cash back, travel points or frequent-flier miles, users of credit card programs typically earn one penny for every dollar they charge, assuming they always pay their bills off and never pay interest.

But you want to be above average. To double that 1 percent, sign up for the Schwab Bank Invest First Visa Card or Fidelity’s American Express Cards. The big catch here is that your rebate (which doesn’t count as taxable income) will need to go into a brokerage account at Schwab or one of several possible accounts at Fidelity. If you don’t already have an account at either place, you’ll need to get one.

The American Express Blue Cash card still helps big spenders easily break the 1 percent threshold, and the Amex Costco card gives you 3 percent back at restaurants. You have to be a Costco member to get that card.

IF YOU WANT TRAVEL REWARDS: Airline frequent-flier cards are still popular and remain the best credit card deal going for certain consumers. If you can fly when the airline has available seats at the lowest price in miles for your destination, and travel in first or business class to overseas locales, your miles may end up being worth 5 or 10 cents each, or more, given what you would have paid in cash for the seats. Not bad if you can swing it.

If you can’t, the Citi PremierPass Elite Level card earns points based on what you spend and how many miles you or others fly on flights you paid for with the card. This card can also yield well over a penny a point, though the details are complex.

My top-of-wallet card continues to be the Starwood Preferred Guest American Express card. The Starwood points are easy to use at its hotels, like the Westin and W chains, and they can easily be worth 3 cents or more. You can also trade points for miles on several airlines, and if you trade enough points at a time, you end up with 1.25 miles for every dollar spent on the card.

But what’s best for you will depend on whether you want only one card in your wallet (skip Amex then, since it isn’t accepted everywhere) and whether you prefer straight cash back, free travel or something else entirely.

What we all share, however, is a desire to pay less and earn more than the average customer. We can’t all be above average. But right now, when card companies are wondering how many changes they can make before driving us away, you’d be crazy not to try.

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