Creditworthy?Credit card issuers use all sorts of tricks to hook people into applying for a new credit card, but there are several key terms that may indicate that an offer isn’t quite as sweet as they say it is. MainStreet breaks down what to look out for so you don’t unintentionally end up with the worst credit card on the market.
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“$100-Plus Annual Fee”Big spenders may be able to afford $100-plus annual fees that certain elite credit cards carry, but average consumers probably don’t travel or spend enough to justify the exorbitant yearly payments. After all, what good are waived foreign transaction fees or free flight vouchers that come with a card like the American Express Platinum – which carries a $495 annual fee – if you don’t intend to use them?
Moderate spenders are better off looking for a rewards card that doesn’t carry the extra perks like airport lounge access or 24-hour concierge services, in favor of a $0 annual fee card that will earn a nice return on each dollar they spend.
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“Blackout Dates”Airline credit cards have gotten a lot swankier during the past year or so as issuers have added all sorts of perks like lounge access and free checked bags, but frequent fliers should still check to make sure they can redeem their miles whenever they want. Smaller airlines may still impose black-out dates on busy travel weekends.
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“Earn rewards on up to …”While the credit elite should look for cards with 2% to 5% cash-back rewards (1% being considered pretty standard), they’ll need to check what earning limits are imposed by an issuer as those can severely dampen a deal.
Discover’s More card is a pretty good example of one that’s not as sweet as the “5% cash-back” tag might indicate. Consumers get that percentage back, but only on the first $300 to $800 in purchases determined by the specific category being featured that quarter. The Chase Freedom card, which also offers 5% back in rotating categories, lets cardholders earn cash back on up to $1,500 each quarter, and therefore has higher earning potential.
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“Points expire on …”Certain issuers may only give cardholders a limited amount of time to redeem their rewards points before they expire. The points associated with Wells Fargo’s Rewards credit card, for instance, expire on the 60th monthly billing statement in which the points were eligible for redemption. Other points will expire if account holders stop using the card for a certain period. Points accrued on JetBlue’s credit card, for instance, will expire if a cardholder doesn’t use the card at least once in a 12-month period.
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“The go-to APR is 49.9% …”Consumers looking for a balance transfer card need to look beyond the 0% introductory rate being promoted by the issuer and make sure that the APR that applies once the introductory period elapses isn’t astronomical. (Those with decent credit can expect interest rates between 14% and 20%.) This is especially important since the “go-to rate” can also wind up being the APR you inherit if you miss just one monthly payment while paying the balance down.
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“A Sign-on Bonus after you spend …”Flashy signing bonuses are undeniably enticing, but consumers need to make sure they won’t require an entire paycheck (or two) to actually receive the bonuses. Issuers typically pair the extra rewards points or cash back with a spending threshold.
For instance, Citi’s Thank You Premier card currently offers consumers the opportunity to earn 50,000 rewards points (at a $500 value), but they have to spend $2,500 in the first three months of the account being open to do so. While this may seem reasonable for big spenders, the average cardholder may have easier time earning the $100 Citi offers with its Dividend MasterCard. New cardholders only have to spend $500 in the first three months to qualify for that promotional offer.
Whatever your spending habits may be, it’s important to make sure the offer isn’t going to force you to spend more than you can cover in the specified timeframe. Otherwise, the interest rates will eat your bonus … and possibly then some.
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“For Businesses”Even bigger sign-on promotions tend to be tied to offers for business credit cards, but don’t let the 100,000 bonus points fool you. Business cards are exempt from the CARD Act and don’t always offer the same protections as cards marketed to individuals. For instance, issuers can raise the interest rates on existing balances or impose a penalty rate on business cardholders without providing any notice. They can also direct payments to the lowest interest rate first, maximizing interest charges and negating all the bonus points that led you to sign up for the card to begin with.
The lack of protections often mean that, unless you’re looking to capitalize on heavy rewards on office supplies, it’s often not a good idea for a business owner to get a business card.
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7 Ways to Spot a Bad Credit CardWant to learn more ways to can tell if a certain credit card is closer to a predatory loan? Check out MainStreet’s look at seven ways to spot a bad credit card.
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