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Credit Card Offers: What's the Catch?

“ I applied for a credit card with a 5.9% interest rate. A few months later, the credit card company changed the rate to 21%! They told me that even though I've never missed a payment to them, they changed my rate because I was one day late paying another company.”

“I'm trying to pay down my credit card debt. I got an offer to transfer my balances to another card at zero percent interest. I thought that was great until I got my first statement. There was $178 in fees. They charged a“balance transfer fee” of $90, an annual fee of $59, and on top of that a $29 fee for exceeding the credit limit–which happened because the first two fees put me over the limit.”

The offers fill your mailbox: pre-approved credit cards, low interest rates, 0% interest balance transfer offers, frequent flier miles or rebates, and more. They sound good, but many consumers apply for new credit cards only to find that the low interest rate doesn't last or that the card comes with unexpected fees.

To protect yourself: Read the details of the credit card offer before you apply for the card, and make sure you fully understand the terms being offered. The details are usually in small print. You might be surprised at what you find.

Below are some things to consider when reviewing a credit card offer:

Low interest rate? Many cards offer a low Annual Percentage Rate–but only for a short time. The introductory rate might only last a few months and then jump to an extremely high rate. If you want to use a new, low-interest rate card to consolidate and pay off your higher interest rate debt, find the card with the longest time period for the low-interest offer. Credit card companies should disclose how long the low-interest offer will last and what the interest rate will be once the low rate ends.

Also, check the offer to see if the low rate will be revoked for any reason. Many cards specify that the interest rate will rise if you make a late payment, if you make a late payment to any other creditor, or if your balance ever exceeds the credit limit. The credit card company will monitor your credit report to see if you miss making a payment to other creditors.

Balance transfer fee: Some cards, even if they offer zero-percent interest on balance transfers, charge a fee to transfer the balance from one credit card to another. For example, a 4% balance transfer fee on a $2,000 transfer would cost you $80. And be careful–if you transfer the maximum amount allowed on the new card, and there is a balance transfer fee, you will then be over the credit limit and will probably be charged an over-the-limit fee.

You're pre-approved: Don't count on it. Credit card companies get your name from credit reporting agencies by paying the agencies for lists of consumers that meet certain criteria. Once you call to accept the offer or send in the form, the credit card company will seek your full credit report and determine if you qualify. You might not. The company might decline to issue you a card, or send you a card with a lower credit limit or a higher interest rate than advertised.

Credit line: The amount of credit offered may not be available to you. If you look closely, you'll probably see the words "up to" before the number. Depending on your credit history, you might receive a card with a lower credit limit than you were expecting.

Cash advance fees and rates: Many cards charge a fee for cash advances, or the interest rate for cash advances is much higher than for credit purchases. If you're likely to use the card to get cash advances, be sure you know what it will cost you.

No annual fee? Many promotions promise you won't have to pay an annual fee. But some cards are free only for the first year.

User bonuses: Some cards offer perks such as frequent flier miles or cash back for using the card. Often, these cards charge annual fees or have a higher interest rate than other cards. If you carry a balance, you might be better off choosing a lower-interest-rate card even if it offers no bonuses.

Over-the-limit fee: Some consumers assume that if they make a charge that would put them over their credit limit, the card would simply refuse the charge. Instead, the credit card company will often allow the transaction to go through but charge the consumer a fee, as much as $39, for exceeding the credit limit.

Card guaranteed in exchange for a fee: Never pay a fee in advance for a card. This is a scam. Many people have paid up to $200 for a “major credit card” only to receive nothing, or they received a merchandise catalog and a card that was only good for purchases from that catalog.

When You Receive Your New Card

Once you receive a new credit card, read the accompanying credit card agreement to be sure you understand and accept the terms. If you receive a card that was not what you wanted–for example, it has a lower credit limit or a higher interest rate–you should notify the company that you decline the card. You should read the accompanying card agreement or ask the company for any specific directions on how to refuse the card.

Even if you plan to keep the card, read the agreement carefully. Note what it says about your interest rate and what events might trigger a rate increase; how long the grace period is before interest is charged; when a late charge will be applied and how much the late fee is; and what happens if a charge causes your balance to exceed the credit limit.

Watch Out for Changes in Terms

Even if you shopped carefully for a credit card and are happy with the one you chose, there is no guarantee its terms will stay the same. Most credit cards reserve the right to change their terms, including the interest rate, at any time as long as they give their customers notice. Your credit card company might send you the notice of the change in terms as a separate notice, or with (or on) your monthly statement. Therefore, it's a good idea to look carefully at your statement each month and any inserts that might come with it. You will be given a certain period of time, often 15 or 30 days, in which to tell the company if you do not choose to accept the new terms. If you do nothing, the new terms will go into effect and you will be bound by them.

If you choose not to accept the terms, check your credit card agreement and the notice to see what options you have to pay off your card balance.

Maryland Attorney General's Consumer Protection Division
Consumer hotline: (410) 528-8662 or 1 (888) 743-0023 toll-free


Attorney General of Maryland 1 (888) 743-0023 toll-free / TDD: (410) 576-6372
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