Good and Bad Deals in Credit Cards
Where can I get a list on-line of all the best credit card deals?
The best place we've found is http://www.bankrate.com. This site is truly impressive in its in-depth evaluation of credit cards-- secured and unsecured. (return to Index)
In general, what should I look for in a credit card?
There are three principal features to the card itself: interest
rate, annual fee, and grace period. By law, all must be disclosed
at the time you apply. (They are discussed in the following Qs.)
Some cards, such as Discover and the new Ameritech Complete MasterCard, pay rebates as well. Some cards offer other features like
frequent-flyer miles and extended warranties on purchases. You decide how much value those features hold for you.
Also important is the pattern of your shopping: a card that your
favorite merchants don't honor isn't much good to you. (return to Index)
Do I want a fixed-rate or floating-rate (variable-rate) card?
The interest rate is the rate charged on purchases and cash advances
(generally two different rates). It can be fixed or floating.
Fixed rates are not truly fixed, because the banks will change them
every year or so. Floating rates are typically a bit lower than
fixed rates, but fluctuate every month according to the latest
T-bill sale, or the phase of the moon, or whatever. If you buy
something you're expecting to pay off over many months, this makes
it hard to guess how much finance charge you'll be paying.
Floating rate and variable rate mean the same thing.
Years ago, credit card issuers would quote an interest rate that was
not directly comparable with other lenders' rates because the method
of computation was not standard. Now the law requires lenders to
quote an Annual Percentage Rate (APR) so that you can compare cards.
Interest rates are all over the map. In a recent Wall Street
Journal list, a secured card was as low as 8.0% and an unsecured
card as low as 10.5%; you may also see interest rates as high as
21.9%. (return to Index)
How do annual fees work?
The annual fee is, well, a fee that the card issuer bills to your
account annually. Every year, on the anniversary of the date your
account was opened, the fee for the coming year is billed to your
account. Typical charges are $18-$20 for regular bank cards (about
$40 for gold bank cards) and anywhere from $35 on up for various
flavors of T&E; cards. House cards are typically free.
Many lenders waive the fee the first year to get you to sign up,
then depend on you to forget a year later that you'll be charged an
annual renewal fee. There's nothing shady about this as long as
it's disclosed up front.
The AT&T; Universal Card no-annual-fee offer has expired. If you
don't have an AT&T; Universal Card now, you can apply for one but you
may have to pay an annual fee. However, AT&T; is still inviting some
people to apply for a no-fee card.
AT&T; Universal Card Services will waive annual fees if:
a) You transfer a balance of thousand dollars or above from
another credit card when you receive the AT&T; card.
*and*
b) You use the card at least once every year.
(return to Index)
Can I get the annual fee waived at renewal time?
Many lenders have "secret" programs in effect where, if you ask them,
they will waive the annual fee. (AT&T; confirmed on 19 March 1992
that it is waiving the fee on its Universal cards for at least some
customers who ask.) Some do it only if you charge a certain amount
per year; others have other criteria. It certainly can't hurt to
call just before renewal time and ask. (If you wait until after the
fee is already on your statement, your chances aren't as good.)
Some banks will waive the annual fee if you tell them that you'll go
elsewhere if you have to pay it. Others will not. You may want to
ask (politely) to talk to a supervisor, since the front-line person
may not care whether you cancel your card and may not have the
authority to make concessions. Don't bluff on this unless you are
confident you can get a card elsewhere.
One article in Usenet reported that the author called Citibank to
cancel his Visa card because of the annual fee. They would not
waive the fee but said they would send him a gift certificate for
the same amount if he kept his card. (return to Index)
What about application fees?
These are extremely uncommon. Though such fees are legal, look long
and hard at the terms before you agree to pay an application fee,
even if you are "guaranteed" acceptance. You can almost certainly
do better elsewhere. (return to Index)
What other fees should I be concerned about?
Many cards assess an "over-limit fee" if you charge something that
takes you over your credit limit. They may or may not allow the
charge if they assess this fee. $20-$25 is common.
Some cards charge a late payment fee in addition to the finance
charges. Again, $20 - $25 is common.
Some cards charge a transaction fee for cash advances. This may be
a flat amount (around $2), a percentage (1%-2% is common), or a
combination. These fees are in addition to the stated interest
rate, which usually starts accruing as soon as you get the money.
You have the right by law to know what all these fees are
when you apply. (return to Index)
Why is a grace period important?
The grace period is the time after the billing date that you have to
pay off the bill without paying finance charge. (Grace periods for
cash advances are pretty rare, since the bank would lose money on
them.) T&E; cards typically have generous grace periods; bank cards
usually have 25 days but a few have 30 and many have no grace
period. In every case the grace period runs from the date printed
on the bill, not from the date you get the bill.
For instance, suppose your bill is prepared on the 28th of every
month and the grace period is 25 days. If you make a purchase on
July 3 it will show up on the July 28 bill and you'll have until
August 22 (July 28 plus 25 days) to pay it off for free. If you
don't pay the full balance, your August bill will show a finance
charge, and so will every bill after that until you pay off your
full balance.
Some banks give you a grace period only in months when your previous
balance is zero. Others (fewer of them all the time) give the
stated grace period on all new purchases even if you have a balance
from last month. The second method can save you big bucks; be sure
to find out how your bank does it when you apply for the card. (return to Index)
Why is a discount better than a rebate?
Rebates are a percentage refund on your purchases, either by check
or by credit, to your account. Discounts actually reduce the price
on the bill before you pay it. Discover offers rebates on all
purchases. The Ameritech Complete MasterCard gives 10% rebates on
credit card calls at the end of the year, where the AT&T; Universal
card gives 10% discounts on credit card calls. On the principle
that it's always better to keep money in your account than to pay it
out and get some of it back later, discounts are better than rebates
if the numbers are otherwise equal. (return to Index)
What else should I watch out for in cards with rebates?
First: When will the rebate be issued-- at the end of the month or at
the end of the year? (Typically, it's after the end of the year.)
Second: How is the rebate calculated? Be sure to read the fine
print. For example, Discover advertises "up to 1%" rebate". That's
true; but the fine print reveals that you get back 1% of every dollar
you charge after $3,000 a year; the first $3,000 is rebated at rates
between one-quarter and three-quarters of a percent. (Confirmed by
telephone, 1991 Oct 14, and by personal experience.) (return to Index)
How do I evaluate a secured card?
Use the same criteria as for any other card. Ask the bank some
additional questions: What interest is paid on the deposit? If I
maintain a good credit record, when could I be considered for an
unsecured card?
Also ask yourself if you might conceivably have need for the
deposited funds during the required term. If so, find out up front
whether you can withdraw the deposit in case of financial emergency,
and what it costs in interest and penalties to do that.
You will want a secured card if you don't qualify for an unsecured
one but you need credit.
You may want a secured card even if you could get an unsecured card.
Why? Since a secured card represents less risk to the bank,
interest rates may be lower than for unsecured cards. (Two recent
surveys showed an Illinois bank's secured card with a grace period
and no annual fee that had the lowest interest rate in the surveys.) (return to Index)
Shouldn't I get as many cards as I can?
Not necessarily. The more cards you have, the fatter your wallet is
and the more cards you have to keep track of.
See Credit bureaus and your credit rating for other reasons why having a lot of cards can be a problem. (return to Index)
Why would I want more than one of the same kind of card?
Some people like having, say, two MasterCards or two Visas. I don't
see the advantages of such an arrangement. I've heard some people
say they charge a big-ticket item on one card and pay it off a
little bit every month, while charging normal purchases to the other
card and paying them off in full every month. However, credit card
debt is about the most expensive way there is to finance a big item;
you're almost certainly better off getting a loan from your bank or
credit union.
You might want to have a MasterCard and a Visa, or a bank card and a
T&E; card, to be able to charge at places that take one but not the
other. In this case, try to schedule the billing dates two weeks
apart. (Some card issuers will alter your billing date if you ask.) (return to Index)
Is a gold card worth the higher annual fee?
Gold cards typically carry some of these perks: collision damage
waiver on auto rentals, travel insurance, extended warranty on
purchases, roadside assistance, higher credit limits, frequent-flyer
miles, and of course :-) prestige.
Many non-gold cards also offer some or all of these. The AAA offers
roadside assistance. Many standard auto insurance policies cover
the CDW on rentals. If you have a good record on your existing
card, you can probably get your credit limit increased by calling
the issuer. There's no one answer to whether these cards are worth
the extra money. You decide what the perks and prestige are
worth to you; your neighbor could well come up with a different
answer. (return to Index)
I was mailed a solicitation for a Visa or MasterCard that accrues frequent-flyer miles on my purchases. Is this a good thing?
It may or may not be. Does the airline fly to places you really
want to go? How many dollars must you charge to earn a free ticket?
Is the airline likely to be around by then? Are you likely to spend
more than you otherwise would, just to accumulate the miles?
Ask yourself questions like these, and you'll have no trouble coming up with the answer. (return to Index)
I belong to the Harley-Davidson Owners Group and they mailed me a credit card solicitation. It would be a MasterCard with their logo on it. Is this a good deal?
This is an affinity card; see Credit cards, other
cards. Evaluate an affinity card as you would any other. If you
would consider it a good deal in the open market, based on the way
you use credit, then it's a good deal. But an expensive card
doesn't become a good deal just because a small fraction of the
profits are turned back to your organization. Unless the card is a
good deal for you personally, it's a better idea to make a direct
donation to your organization (and get a tax deduction, too, if
it's a charity). (return to Index)
I got a call (or saw an ad) inviting me to call a 900 number for a "guaranteed" MasterCard or Visa. Is this a good deal?
No. These offers require you to pay up front either for a specific secured card or (worse) for a list of banks that issue secured cards.
Instead, if you need a secured card, apply to a bank that advertises them. Your own bank may offer one, or try looking on line for secured cards. Secured cards typically charge a rather high interest rate plus a card processing fee and an annual fee.
Even better, ask your own bank about getting a secured card there, or referring you. There's no charge for making the inquiry, and I have never heard of a bank charging a fee for a direct application.
Finally, check on-line! With all the great information out there, you should be able to find lots o' good stuff and even apply on the spot! You can try Bank Rate Monitor or try typing in the key words "Low rate credit cards" into any of the search engines. (return to Index) (return to Index)
My bank offered me a deal if I would agree to set up my checking account for automatic withdrawal on the due date to pay the credit card. Is this a good idea?
It depends on the specific terms of the deal. For example, a
reduced interest rate is meaningless if you pay off every month
anyway.
It also depends on your own spending patterns. If you tend to
forget to pay your bills on time, this arrangement can save you some
late charges or finance charges. On the other hand, if you forget
to enter the automatic withdrawal in your checkbook you may find
you're overdrawn and start bouncing checks.
Some consumers have reported problems with disputed charges being
paid automatically, or the bank disregarding special requests to
alter a scheduled payment. You should carefully weigh the promised benefits against the additional loss of control over your checking account. (return to Index)
What should I watch out for in a corporate card?
A "corporate card" is an ordinary card, typically American Express
or Diners Club. However, you don't apply for it. It is issued to
certain employees of a company for the company's convenience in
managing travel expenses. There are a couple of possible problems.
First, you may be individually responsible for charges to the card,
even though you use it only for business purposes. This can be a
problem if your company is very slow to reimburse you for expenses.
Second, some cardholders have posted articles to the effect that
corporate cards may not have the same buyer protections (like
extended warranty) that personal cards offer. (return to Index)
I saw an ad for a card I've never heard of. What's the story?
Be careful when applying for credit. Some companies advertise
credit cards on TV. The problem is that although the card looks a
lot like a Visa or MasterCard, it is only good for merchandise from
the company's own catalog. Despite the promise of "discount
prices," you will pay more than you would pay in stores or through
other mail-order channels.
Most legitimate catalog companies take Visa, MasterCard, American
Express, or some combination. You should always pick merchandise
for its own qualities not because you're forced into it by the
credit card you have. (return to Index)
I got an application for a card that didn't state interest rate and fees. Is this legal?
No. The U.S. Fair Credit and Charge Card Disclosure Act requires issuers of charge or credit cards (including retail stores) to reveal certain basic information in tabular form with the application or the "preapproved" solicitation. This basic information includes interest rate (APR), annual fee, and grace period. Disclosures must also be provided before annual renewal if the card issuer imposes an annual fee. (return to Index)
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Document last modified Monday, 02-May-2005 16:31:06 EDT
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