Credit Card Offers - Common Traps

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.

• What you can do:
  • Before you get a credit card, make sure you know all the fees that may apply.
  • After you get a credit card, try to avoid incurring fees. Make sure you know what fees may apply for each activity and calculate whether it is worth it. For example, before you take a cash advance, find out the fee, the interest rate that will be charged, any ATM fees, and other terms.
  • Because of the high cost, try to avoid cash advances unless absolutely necessary.
  • If you know you will use your card in a certain way, shop around for a card that doesn’t charge high fees for that activity. For example, if you travel abroad a lot, try to find a credit card that doesn’t charge a foreign-transaction fee or that charges a low foreign-transaction fee.

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.

• What you can do:
  • Before you get a credit card, make sure you know what interest rate you may be charged and when and how the credit card company may change that rate. Even if you are pre-approved for a low interest rate, your actual interest rate may depend on your credit history, and you may not know your interest rate until the credit card company approves you for a card.
  • After you get a credit card, try to pay off your full monthly balance, if you can, to avoid paying high interest rates. When you are charged high interest rates, you end up paying much more for things than if you had paid cash.

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.

• What you can do:
  • Before you get a credit card, make sure you know all the terms of any benefit and decide whether the card makes sense for you.
  • After you get a credit card, don’t end up spending more money than you need to just so you get a benefit.

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.

• What you can do:
  • Before you get a credit card, make sure the limit makes sense for your needs.
  • After you get a credit card, check your credit limit and keep track of your spending to make sure you don’t go past that limit.

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.

• What you can do:
  • Before you get a small business credit card, make sure you understand all its terms and weigh the benefits for getting the card against the fact that you won’t have the same consumer protections that you would for a consumer credit card.