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How To Evaluate Credit Card Offers

What Should I Be Careful About With Respect To Credit Card Offers?

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There are almost as many things to be careful of as there are individual card companies. Most importantly, never assume that because a card offer is somehow linked to a bank name it is reputable.

  • "Pre-approved" does not mean what you think it does. 
    • All those "pre-approved" applications you receive in the mail do not mean that if you sign on the dotted line, you automatically receive the credit card. 
    • If the offer sounds to be good to be true knowing your credit history, it probably is.
  • Look at the text and the fine print for:
    • Fees such as sign-up, annual, participation and monthly maintenance fees.
    • What triggers a change in the interest rate.
  • With reward cards:
    • Check to see how easy it is to redeem the rewards.
    • Consider your payment habits. If you do not  some banks take away a month's pointss if you miss a payment. They may charge you a reinstatemnt to get them back (which may be worth paying if you spent a lot that month). 
    • Be careful of reward cards linked to benefits like frequent flier mile programs. Reward cards typically impose an interest rate that is 1 percentage point higher than that of other comparable cards. Plus you may have to spend a lot before getting anything in return. And, if the reward is something like airplane rides, keep in mind how increasingly difficult it is to find reward seats on full airplanes.
  • Look out for "universal default provisions" in your credit card agreement. Universal default provisions means your card issuer can impose a higher rate on your account if you are late with a payment to another creditor.
  • Sometimes companies include a provision that they can apply your payments to the parts of your credit card debt with lower Annual Percentage Rate rather than the higher rate debt. For example cash advances usually have a higher rate than regular credit card charges. To keep the higher debt outstanding is in the best interest of the credit card company -- not yours.
  • When you receive a new card and accompanying paperwork, read the documents to be sure they say what you were told. If they don't, return the card -- without using it first.

NOTE: You can avoid late payments by arranging to have your bill automatically paid from your checking account. If you do, check each statement to assure that all the charges are yours.

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