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Lothario Lenders on the Prowl

Lenders, we're onto you. We know that those sweet single-digit interest rates that you use to woo us can turn sour a few months into our relationship. We've played the field, so before we fall for a looker this time, you'd better pass our strict background test.

So what should you look for, Fool, in a money match made in heaven? Here are some tips.

What does the offer apply to? Balance transfers? New purchases? Make sure the suitor is not just a big talker with nothing to back up his promises. If you're using the card to move an existing balance over, make sure the balance you transfer falls within the credit limits of the new card.

Check how long the low rate lasts. The best offers are ones where the rate applies for the life of the transferred balance. But those are rare, so at least look for one that lasts for a reasonable period of time. Six months is a good starting point. And remember, not all banking relationships are destined to last forever.

Make sure you qualify. With the right lighting, even a tired old card can look good. The best place to start looking for a better deal is in your wallet. Start with your current lender, and negotiate for a lower interest rate. If you don't get one that's satisfactory, shop around. Lenders are tightening their requirements for the best deals. Still, competition is fierce.

Be diligent about paying your bill. Make minimum payments (more than the minimum amount due if you can) on time, or else you can pretty much kiss that low rate goodbye. Lenders are always looking for a way to eke more money out of you -- whether through interest or late fees or penalties. Late payments are just one event that'll give them a reason to hike up that interest rate. The average penalty rate is around 24%. But some go much higher, as my colleague Selena Maranjian reported last year. Hold any of these lenders in your wallet?: MBNA (bought by Bank of America (NYSE: BAC  ) ), 24.99%; JPMorgan Chase (NYSE: JPM  ) , 26.74%; Morgan Stanley's (NYSE: MS  ) Discover, 24.99%; Capital One (NYSE: COF  ) , 25.9%; and American Express (NYSE: AXP  ) , 26.74%.

What's worse, if your bank finds out that you were late paying someone else -- the phone company, a doctor, retailers -- it can legally raise the interest rate you're paying, even if you've been nothing but a stellar customer. It's called the "universal default clause," and it can be worse than getting dumped.

Avoid putting new charges on the card. Decide exactly what you want out of your relationship before you're talked into some action that's not right for your budget. Most of the time, new purchases are subject to a higher interest rate. Plus, they'll be the last charges your payments will be applied to. That means that if you take your time paying off that $10,000 but have put another few grand on the card at 14% interest, your payments won't touch the new charges until the old, lower-rate ones have been paid down. You don't want to be accruing interest on those new charges for any length of time.

Line up your next suitor. It never hurts to be open to other offers. If you plan to move any remaining balance over to a new credit card once the special rate expires, line up the new line of credit ASAP. (But first, check with your current lender once again to see whether it will play ball.) Also consider closing the no-longer-useful account. You don't want to have too much credit available in the eyes of the lending industry. On the other hand...

Be careful which cards you cancel. We encourage you to dump the duds from your wallet (here are a few pointers to spot the slackers), but you might not want to erase all the signs of aging. Lenders like to see a long and illustrious history of handling money.

Check out the Credit Center for more tips on managing your credit.

JPMorgan Chase and Bank of America are Motley Fool Income Investor picks. Take the newsletter dedicated to dividends for a 30-day free spin.

Dayana Yochim owns none of the companies mentioned in this article but carries credit cards issued by a few of them.


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