September 2003
They arrive in the mail three or four times a week—enticing credit card offers: 0% for 6 months! 2.9% till July 2004! No fee for balance transfers!
Don't such offers sound too good to resist? That's exactly what the card issuers hope you'll think—and act on! But before you grab a pen to fill in the application, consider all the following consumer traps lurking within the tiny print of most credit card offers. After a little study of these gimmicks, the smart consumer will rip up the great majority of the offers and toss them.
The disappearing low introductory rate. Most cards offer a low introductory rate only for a limited amount of time. That introductory rate may apply only to the "balance transfers" they want you to make or it may apply also to new purchases. But at the end of the intro period, that interest rate will rise—and that higher rate will be applied then to outstanding balances. That long-term rate, which must be disclosed at the time of the offer, may be higher that your current card.
Annual fees and balance transfer fees raise the effective interest rate. Though they may offer a low introductory rate, many cards charge either an annual fee or a balance transfer fee or both that effectively raise the interest you are paying. If you pay a $35 annual fee and a 2.5% balance transfer fee on a transfer of $1,000, for example, you have just added 6% APR to whatever rate you agreed to pay.
Higher interest rates for cash advances and new purchases. Checking the small print of most credit card offers reveals that cash advances never receive the lower introductory rates. Instead the rate for cash advances on many cards is as much as 19.9% APR or higher. Ouch! Many cards also charge the higher interest on any new purchases (beyond the balance transfer or initial "convenience check") made even during the introductory period.
0% that isn't really zero. Some companies are now offering rates of 0% on balance transfers that last until the transferred balance is paid off. Sounds good, but there can be several catches. First, there's often a transfer fee of typically 3%. Next, to keep 0% on the balance transfer, you have to make a minimum of new purchases which are charged the regular, higher APR. Finally, make a payment late and 0% disappears, replaced by a much higher rate.
Quick trigger late fees. Most card companies no longer offer grace periods for payments. If the payment arrives even a day late, a late fee is charged. The average fee these days is $29-$30. Some companies are even time-stamping payments—the statement says the payment is due on a certain date; the fine print says it has to arrive by a specific time, usually noon or 1 p.m. on that day. If your payment arrives on the due date but in the 3 p.m. afternoon mail delivery, lets say, that's too bad—you'll be charged that $35 late fee. Late fees and other penalties now account for a sizable portion of credit card company profits.
Punishing penalty APRs after a late payment. If you pay after the due date by even a day or two, some card companies then increase the interest rate on the account dramatically. Miss the due date once and your rate may skyrocket to 19.8%, for example; miss it twice with this same company and the rate goes to 25.9%. That increased rate is your new rate from that point on. In addition, the company adds fees such as $29 or $35 for each late payment.
Lower interest rate balances are paid off first. If the balance on the card was accumulated at different times—for example, a balance transfer at a 4% intro rate, new purchases at 15% and a cash advance at 19%—the card issuer applies your payment first to its fees and the lower interest balances. You continue to rack up interest on the higher rate balances.
The disappearing grace period. The big print may say that the card offers a 25-day grace period on new purchases before interest starts to accrue. The small print says that if the card carries a balance (if you don't pay it totally off every time), then interest on any new purchases or balance transfers, etc. starts accruing from the date of the purchase or transaction.
Receiving a different card than the one applied for. The promo may offer a gold or platinum card with no annual fee, 2.9% intro interest rate and 10.9% fixed APR thereafter. But when your card arrives, it is just a "basic card" with a credit limit of $1500, an annual fee of $35 and an APR of 22.9%. Congratulations, you have been a victim of the asterisk * (* "with approved credit"). If you don't meet the card issuer's criteria (and only they get to judge what those criteria are), then you may receive a very expensive card. Decline the offer or cancel the account—immediately.
Fees, fees, fees. Fees are the money-makers for the card issuers. These include monthly finance fees (interest), annual fees, balance transfer fees, cash advance fees, late payment fees, over-the-credit-limit fees, convenience check fees, and on and on. Study the fine print carefully for fees and terms related to those fees.
Such common traps in credit card offers lead savvy consumers to trash them—being sure to shred them to prevent anyone from raiding the waste bin and applying for credit in their name (identity theft). If you're in need of a credit card, I recommend that you first check out the cards offered by your credit union.
Prepared for Corning Credit Union by Remar Sutton & Associates, September 2003. Reviewed March 2007. All rights reserved.
