I just received a packet from a credit card company, which extols not only the virtues of having their card over the competition, but more importantly it comes at an incredibly good rate. What's the rate? Try, "Up to 12 months at interest as low as 0 percent." Hey, can you beat that? As low as 0 percent. I am totally underwhelmed. Of course, keep in mind that "up to 12 months" aspect. So, it wouldn't surprise me to find out that after two months (within the up to 12 month period), the low interest rate of zero becomes 21 percent.
Take another look at all this. There is something hidden in it. Many card companies are offering what are known as tiered rates. This means you could easily get a rate as low as 2 percent, for example, or as "low" as 18 percent. The problem is you won't know what it is until you apply for the card. Surprises, surprises.
But what comes first? The application or the terms? Would it shock you to know that it's usually the former. Many banks issuing such credit cards won't provide all the terms until they know something more about you like your Social Security number, your address, and of course, your income. As a result, they can then match what terms they will apply against your credit score and history.
There are some institutions which will call this customization. Sure, we'll customize the terms and conditions after we see what kind of a risk you are by looking at the x-rays of your financial situation. So, why did you write me in the first place?
What is suggested? One bank executive told me that you could simply not apply for a card that will only give you terms after you disclose all the financial information. That's certainly simple enough. But this same executive also suggests there is a way around this and that is to apply for a number of cards at the same time and then compare who's on first. In this way, you can nail down the best deal and simply cancel all the other ones. It won't hurt your credit score much because to the astute lender, they will recognize quite quickly that you are out there comparison shopping. There is one exception here. Don't go this route if you're about to apply for a home mortgage.
Now, digging behind all these terms, consider the following points:
1) Watch out for the two-cycle billing. This means that the lender is using two months of balances on the card to strike an average daily balance. If you are one that rarely keeps balances from one month to the next, you may end up paying two months interest for one month's debt. Watch yourself here.2) The lender might raise your rates if they see a change in your credit history. For example, if you have a $10,000 credit limit and you use that card to purchase something that costs $10,100, you probably won't have the charge denied, but you will have a charge of $60 or more tacked onto your bill.
3) Watch those due dates and make sure you get your payment in well before. Many companies will indicate on the statement when you should mail in your payment. Most lenders will deem a payment late even if it arrives on the due date. This means they are posting at a particular time of day, usually before the daily mail is received. Late payments mean charges, not to mention the possibility of increasing the interest level.
There is no question that complaints about the credit card industry have been increasing over the years but unfortunately, there has been scant attention paid to them...and you can certainly see why.
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