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Dont let the fine print gotcha getchaMay 20 '00 Write an essay on this topic.There are a lot of factors to consider when checking out credit card offers to determine what the best credit card is for you. Unfortunately, credit card companies tend to bury the least attractive factors in the itty bitty fine print while trumpeting what they think is important in the big bold type. For years I’ve received credit card offers in the mail on a regular basis. We haven’t specifically been in the market for a new credit card as we have plenty already and don’t really use them for purchases anymore, but occasionally I’ll open up one of the offers before I shred it just to see what’s out there. Let me just say I’m not too impressed with the offers we receive. If you are considering a credit card offer, here are some of the things that you need to really pay attention to in making your decision: Interest rate The interest rate is usually the factor you’ll want to consider the most if you intend to carry a balance. Many credit card companies offer teaser rates - 2.9% or 5.9%, something really low - and put that teaser rate in big bold letters all over the letter. The catch is that those low rates usually are only introductory rates good for a short period of time, generally 6 months to a year (the “introductory period”). If you read the fine print closely, you’ll often find that after the introductory period is over, the interest rate jumps to a huge amount, such as prime rate plus 9.99% or even more, with a minimum rate that it won’t go below. For instance, I’m looking at an offer I received today from Providian. Not only do they not even have an introductory rate, but the interest rate currently is a variable 19.99% - 10.99% added to the prime rate and it will not go below 19.99%! Sorry Providian, not a chance. There are credit card companies that don’t have such a huge increase in the interest rate after the introductory period, so be careful when reading the fine print to see what your interest rate could be. Even if you find a card that offers a reasonable rate, you also still have to make sure you make payments on time and don’t go over your credit limit, because doing either of those usually gets your interest rate jacked wayyyyyy up. Read the restrictions closely. If you’re not going to be carrying a balance and instead pay your purchases off each month, then the interest rate may not matter quite as much. However, if the card doesn’t have a grace period (see discussion below), then you may want to try for a reasonable interest rate even if you won’t be carrying over balances from month to month, especially if you charge a lot of purchases in a month. Grace period Since more and more people in the United States understand the importance of not carrying high credit card debt and are paying off their cards, the credit card companies have had to find more ways to earn money. One of these ways is to discontinue the grace period for purchases made. What this means is that if your credit card company doesn’t offer a grace period, interest begins to accrue on the date you make a purchase, even if you were to pay off the entire outstanding amount as soon as you got the bill. For instance, with no grace period, if you buy some books on April 3 and your credit card statement isn’t issued until April 27, you will have 24 days’ worth of interest added to your statement for those books. On the other side, there are still companies that offer a grace period. This means that if you buy those books on April 3, your statement is issued April 27 and the payment is due on May 10, then as long as you get your payment posted to your account by May 10, you should not be charged any interest for those books. The exact amount of the grace period varies, but usually runs for 25 days. You definitely would want a card with a grace period if you plan on paying off your balance each month so that you don’t get dinged with this interest. Fees Credit card companies have all sorts of fees that they can impose on you, so be sure to read all of the fine print very carefully before applying for a card! Some of the fees you may encounter: Annual/monthly fee Whether you carry a balance or pay it off monthly, you never want to get a card with an annual fee. However, one of the ways that credit card companies get around having to offer low interest rates to remain competitive is by imposing an annual fee for the “privilege” of using their card. Keep looking if you find one that does, because there are so many offers out there. Most cards that have a fee charge this amount annually, usually in the month that is your anniversary of being approved for the card, and the first year is usually waived (darn nice of them). The Providian offer I mentioned, though, bills it monthly, at a rate of $7.95 per month (almost $96 a year!). Transaction fees Most credit card companies don’t charge any fee for regular purchase transactions (outside of normal interest, etc.). However, I think all companies charge a transaction fee for cash advances. Generally, you get charged an immediate fee of 2-3% of the cash advance amount, with perhaps a minimum fee ranging from $2 to $5. The worst part about cash advances, though, is the interest rate is usually in the neighborhood of 21.99% to 25.99%! Doesn’t matter what your “regular” interest rate is, cash advance interest rates are almost always extremely high. The moral of the story here is to use your credit card for a cash advance ONLY if you’re absolutely DESPERATE! Late payment fees Generally you’ll be charged $29 each time your payment is late. Some companies will give you a couple of days’ “grace”, while others won’t even give you an extra second. It used to be that this fee was $25, and I’m not really sure why they all increased it to such a weird amount! “Why” they increased it, no doubt, is because it’s yet another way they can get a few more bucks from people; I’m just not sure why it went to $29 instead of a nice round number like $30. There is at least one company, Next Card, that charges a lower variable late payment fee that depends on how late your payment is. If payment is not received within 5 days of the due date, the charge is $7; if not received within 10 days, $10; if not received within 15 days, $15. They do only charge one fee though, you don’t get dinged at all three levels. Over the limit fees That weird $29 fee pops up in this category as well, as most credit card companies will charge you $29 if you go over your credit limit. I guess that’s better than getting turned down for a purchase when you’re in the store, but not by much. Rewards Many credit cards offer the opportunity to earn various rewards. While rewards can be good, make sure you consider such a program only in the overall review of a credit card and don’t necessarily make it your sole reason for choosing one. Different cards offer different rewards. Some of the more common features are those that offer frequent flyer miles, discounts on new cars, free airline tickets, discounts on hotels and car rentals, gift certificates, or donations to charity. You generally get credited with X amount of miles/points/dollars per dollar you charge on the card, not including fees and interest. Gold cards The Visa and MasterCard Gold cards generally offer extra benefits for free (although these cards are also more likely to charge an annual fee, so maybe these benefits aren’t all that free). You’ll usually be offered purchase security against damage or theft for 90 days on purchases made with the card; one-year automatic extended warranties on purchases made with the card; lost luggage insurance that insures checked baggage in case of loss or damage while traveling; travel accident insurance for air and other means of travel purchased with the card; and auto rental collision protection for car rentals paid for with the card, which means you can decline the insurance that car rental companies charge an arm and a leg for. Conclusion As you can see, there are a lot of things to consider when you’re reviewing a credit card offer. You should first determine how you’re most likely to use the card, either by carrying balances or paying them off each month. Once you know how you’re going to use the card, you can make a much better informed decision on which card is right for you. The most important thing is to very carefully read the fine print. That’s where the “gotcha” will usually be hidden. Don’t let the fine print “gotcha” getcha.  |
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