You’ve probably seen credit card ads that offer low interest rates and lots of benefits. You may even get pre-approvals for credit cards with great terms “just for you.” But these offers may contain hidden terms that end up costing you more than you think. And even if you are pre-approved, you still have to apply and get approved, and so you may end up not qualifying for the great terms that were offered.
Make sure you understand all the terms and conditions before you apply for or accept a credit card. Read the credit card agreement slowly and carefully, and ask the credit card company questions if you don’t understand something. Shop around for a credit card that best fits your needs. If a credit card you already have is not right for you, don’t use it and consider canceling it.
Here are some things to look out for:
Fees: Some credit cards have large fees or many small fees that can add up. Credit cards may charge annual fees and fees for making late payments, transferring your balance to or from another credit card, going over your credit limit, not spending a certain minimum amount, getting a cash advance, buying something outside the United States, and other things. The amounts of these fees may vary—for example, the amount of a late fee may depend on how much is due. All these fees may add up quickly and make it difficult to pay off your credit card.
Changing Interest Rates: Some credit card companies offer low interest rates, but there may be a catch. Sometimes, those great rates are only apply for a short time, or are limited. For example, a 0% or low interest rate may just apply to balance transfers (that is, transferring the balance you owe from another credit card to the new card), or just for the first year. Sometimes, the great rates only apply if the credit card company approves you after running a credit check on you. And sometimes, the credit card company reserves the right to change the rate at any time, and may give you little or no warning of the higher rate. For example, some credit card companies triple the interest rate if you are late making a payment.
Bonuses and Benefits:Some credit card companies offer sign-up bonuses or other benefits that come with the credit card. But you may find that you only get the benefit if you spend a certain amount of money in a certain amount of time (for example, spend $1,000 in the first month to get a $100 sign-up bonus), or there may be other limits on whether you get the benefit or how you can use it.
Credit Limit: Some credit cards come with very small credit limits and charge fees for going over that limit. You may end up going over the limit quickly, month after month, leading to high fees.
Small Business Credit Cards: Some credit card companies offer small business credit cards that you can use to track your business’s expenses and that may offer seemingly great terms. However, most small business credit cards use your personal credit, not your business’s, and many consumer protection laws that protect against abusive credit card practices do not apply to business credit cards.
For more information about pre-approved credit card offers, see the FTC’s Low-Down on So-called Gold, Platinum, and Pre-approved Credit Cards and Prescreened Credit and Insurance Offers.
For more information about credit card terms to look for, see the FTC’s Credit, Debit, and Charge Cards.
For more information about credit cards generally, see the FTC’s Using a Credit Card.