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Credit Card Offers: What's Behind the Hype

"Now is a great time to get your XYZ credit card, free of annual fees, and take advantage of a low variable Annual Percentage Rate..."

"Use the enclosed checks to transfer up to $6,000 from your high-interest credit cards to our card..."

"You are already approved for this outstanding offer because of your exceptional financial credentials. Our card gives you a pre-approved credit line of up to $10,000..."

Week after week, the offers fill your mailbox: Pre-approved credit cards with promises of low interest rates, big credit lines and user bonuses. How can you find out what's really being offered?

The details of the credit card contract are usually in small print on the back of the letter offering you the new card. Read it before you sign on the dotted line, and make sure you fully understand the terms of the credit card being offered. You might be surprised at what you find.

Here's a recent example: An Annapolis woman received an offer to transfer balances from her credit cards to a new card offering a low promotional interest rate. She thought the offer would save her money on finance charges, so she transferred $3,000, which was the credit limit on the new card. On her first bill, she was shocked to see $247 in fees: a membership fee of $98, a balance transfer fee of $120, and a $29 fee for exceeding her credit limit - which had happened because the first two fees put her over the $3,000 limit.

Below are some come-ons and terms frequently used in credit card promotions - along with some of the strings that are attached.

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. After that, you may be automatically billed for an annual fee.

Low APR: Many companies offer a low Annual Percentage Rate that makes the card attractive to people who carry a balance. However, most of the really low rates don't last long. They are introductory rates that last anywhere from 30 days to a year, and then the rate may 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. This will allow you enough time to pay off your balance. 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. One recent card offer specified that the interest rate would rise from 5.9% to 23.9% if the consumer made a late payment twice within a six-month period, if the consumer made a payment that was more than 30 days late to the card or to any other creditor, or if the consumer's balance ever exceeded the credit limit.

Pre-approved: Don't count on it. Credit card companies get your name from credit agencies. They pay the agency for a list of consumers that meet certain criteria. However, if your credit status has changed recently, you may not qualify for the card you've been offered. 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.

User bonuses: User bonuses give the card holder frequent flier miles, credit toward purchases or phone calls, or even cash back for using the card. Sometimes bonus cards carry annual fees. Always compare the cost of the annual fee with the benefit of the bonus you'll be getting. Also, some bonus cards do not offer the lowest interest rate. You might be better off forgoing the rebate in favor of a lower interest rate card if you carry a balance.

Grace period: Make sure the card has a grace period so you won't owe any interest if you pay your full balance off each month. The grace period does not mean that the company will give you a break if your payment is a few days late. You still must get your payment to the company by the due date, or finance charges will begin to accrue and late fees may be charged.

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.

Transfer fee: Some cards charge a fee to transfer the balances from other credit cards to your new card. That could eat into anything you might save by having a lower interest rate. This should be explained on the back of the offer. And be careful - if the amount of the transfer would push your balance over your credit line, you may be charged an over-the-limit.

Over-the-limit fee: Some consumers assume that if they made 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 hefty fee for exceeding their credit limit.

Cash advance fees and rates: Many cards charge a fee for cash advances, or the APR 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.

Credit insurance: Some credit card offers also include insurance that would pay the minimum monthly payment on your card in the event that you become involuntarily unemployed. Read the terms of the protection carefully before you sign up. It's often expensive and very limited in the type of unemployment situations that qualify for coverage and the length of time payments would be made. Your own needs should be your biggest consideration. If you carry a balance, a low interest rate should be your primary consideration. If you pay off your balance each month, you should look for a card with no annual fee or user bonuses. In any case, you can only decide if a credit card offer is worth considering by reading all of the terms - including the fine print.

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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