The federal funds rate, to which the prime rate is closely tied, is expected to remain close to zero percent for the foreseeable future. This low rate should keep credit card interest rates low and affordable, and will likely spur spending. In fact, credit card issuers are focusing on attracting new customers who are ready to swipe and spend. Incredible credit card offers are filling up mailboxes across the country, and those with excellent credit, average credit and even not-so-great credit seem almost guaranteed to get a piece of the credit card pie.
When carefully chosen and used, credit cards can help boost credit ratings and provide non-monetary rewards and cash back or allow cardholders to borrow for less with interest-free credit cards during specific promotional periods. To sift through the offers and choose the best credit card promotions, consumers must read the fine print in order to avoid ending up with cards that hurt their credit, cost them dearly in interest and leave them more heavily in debt than before.
Here are the biggest red flags to be aware of before applying for credit card offers.
#1. Low Introductory Annual Percentage Rates (APR)
The APR is the actual annual interest rate excluding other fees, such as ATM fees, cash advance fees or late payment fees. The APR can provide a quick, fairly effective way to compare the actual cost of various credit cards.
Unfortunately, many companies will lure users in with promises of extremely low APRs or zero-interest credit cards for a certain introductory period. The APR may then be higher than the rate upon signing up. Those who pay off their balances in full every month or who pay down any charges made during the promotional period may be able to benefit from this kind of card. Those who carry a balance from month to month, however, should pass credit card offers like this by; a card permanently low credit card rates or even average interest rate may be a better option for these cardholders.
#2. No Annual Fees
Many card issuers impose annual fees on top of the standard interest rate, which is why a card that promises no annual fees may seem very attractive. These kinds of credit card offers tend to come with limitations, however.
In order to enjoy freedom from annual fees, these cards must be used a certain amount throughout the year in order to qualify. In some cases, the fees may be imposed if the cardholder does not meet that spending limit or is late making his or her payments. Cardholders who use their cards and pay off their balances every month can benefit from this type of card, because they can avoid both interest rates and annual fees. Most others would do better researching other options.
#3. No-Name Credit Cards
When choosing a secured credit card to build or rebuild credit, consumers should look for a card that does not have an application fee and that limits annual fees. The consumer also has the responsibility and the right to ask questions during the application process, including what deposit will be necessary, the credit card rate and what fees will be associated with the use of the card. Consumers should also ask the card issuer if the payment history will be reported to all the major credit bureaus, since this will help them build a positive credit history faster.
#4. Balance Transfer Deals
As many as 40 percent of major card issuers are promising interest-free credit cards for balance transfers from a competitor’s card. The promotional interest rate may be in effect from six to 14 months, which can provide cardholders an affordable way to pay down their debts. These cards are not always a good idea, however, as most credit card companies charge transfer fees ranging from 3 to 10 percent of the balance. These card card promotions can still be a good deal for some cardholders who can locate an offer with low transfer fees and who can pay off the balance during the promotional period.
Those who are still carrying a balance once the permanent APR takes effect will be facing the unpleasant prospect of paying retroactive interest on the entire transferred amount, which entirely negates the benefits of the promotional rate.
The Bottom Line with Credit Card Offers
As with most things in life, if a credit card offer seems too good to be true, it very well may be. Consumers should read the fine print on credit card offers, ask questions if they do not completely understand the terms and be familiar with the official Credit Card Bill of Rights.
Upon receiving a new card, users will need to swipe with caution and make a note of payment schedules since late payments can increase or invalidate promotional interest rates. Ultimately, anyone who receives credit card offers that they have not requested should look carefully at the offer and the issuing bank. If you plan to use a credit card for your next auto repair, make sure you use one that doesn’t cost you an arm and a leg!