2 Things To Know Before Accepting Credit Card Offers

A Client, a Credit Card Rep and I were on the phone.

We were speaking with a Credit Card Rep while shopping around for a good balance transfer rate. We found a rate that I liked and so I suggested that my client apply for an account.

So my client applied for the card. After about 10 minutes on hold, the Credit Card Rep broke her silence and said,"congratulations you have been approved for our gold credit card". I relaxed in my chair and breathed a sigh of relief because my client needed this card to get out of a bad financial situation.

The Credit Card Rep continued "You should receive your card in about 7 to 10 days. Your interest rate will be a variable rate between 3.99% and 19.99% based on the prime rate as published in the Wall Street Journal".

Then to my surprise, my client asked the Credit Card Rep, "can't I get a Libor Rate applied to this card?" Good question but for the wrong card.

Prime vs. Libor Rates

There are two Credit Card Rates that every Consumer should be aware of; PRIME Rate and LIBOR Rate.

Some Credit Cards use the Prime Rate which is based on the Federal Funds Rate. The Federal Reserve Bank manages the Prime Rate.

Other cards use the LIBOR Rate. LIBOR stands for London Interbank Offered Rate. Usually the LIBOR Rate is lower than the Prime Rate.

For example, Capital One uses the LIBOR Rate whereas, Bank of America uses the Prime Rate.

For this reason it is important for the Consumer to keep track of the Rates. Knowing the difference between the Prime and Libor Rates can save a Consumer up to thousands of dollars in interest payments over the life of the card.