by Joseph Kenny | 10/10/08

A credit card, used properly, can be an immense asset. Credit cards offer you the security of a ready line of credit in case of an emergency, they it easy to rent vehicles or shop online, and they're good way to build up your credit score for situations when you'll need to qualify for bigger loans. However, hunting for cards that offer the lowest interest rates can be confusing, especially in the wake of the subprime crisis. Here is what you need to know.

Credit card interest rates are, for the most part, tied to the US Prime Rate--the interest rate set nationwide by the Federal Reserve Board. Even credit cards that purport to offer "fixed" rates are affected by the decisions of the Federal Reserve: if nationwide interest rates rise, credit card companies can usually raise the interest rates on their "fixed" rate cards after a warning only 15 or 30 days in advance.

These days, most credit cards have a mean interest rate of about 13%. This represents a major change since the 1980's, when plastic cards initially entered widespread use. During the 1980's and up until the early 1990's, credit card interest rates averaged about 18-20%. These rates decreased to a mean of about 15% in the late 1990's, and continued to decrease to the comparatively low rates that we see today.

However, as overall interest rates have dropped, credit card companies have become more and more discriminating about their customers, a trend that has only intensified in the wake of the subprime credit crisis. What is the credit card companies' main criterion as to which customers get the best rates? It is the customer's FICO credit score, that one datum that compresses the entirety of their recent borrowing history.

A FICO score of 800 is a perfect credit rating. Before the subprime crisis, credit card companies offered their best rates to customers with FICO scores of 600 or above. Recently, that benchmark has increased to 650 points.

To get the most out of your credit card, you should strive to acquire a "gold" or, better yet, "platinum" card. These cards offer interest rates 2 or 3% below the national average. These days, gold credit cards have an average interest rate of 11-12%. Platinum cards have an average interest rate of 10-11%. Gold and platinum cards also tend to be bundled with money-saving "extras," such as cashback rewards programs, auto insurance, or travel "miles" that accumulate every time you use your card, potentially adding up to free plane trips. Often, these cards also have higher limits on how much money you can borrow.

How to qualify for these "premium" credit cards? Make sure your FICO score is at 650 or above. As a result of 2005 US Congress legislation, you're entitled to see your credit score for free once every year. Find out your score. Often, you can settle any factors that lower your score, such as outstanding debts.

Another way to get good rates on your credit cards is to seek out banks who haven't relied heavily on subprime lending in the past, and who were thus less affected by the subprime crisis. These institutions will often be looking for new credit card customers, and might offer low rates as enticements.