Read the fine print on credit cards before you sign up

Getting the facts gives consumers greater control of their credit cards.

Category: Family, Family Finances, Community, Consumer Finance, Consumer Rights and Responsibilities

Of course not all credit cards are alike. That’s why it’s important to carefully review a card’s terms and costs before you apply for it.

In general, if you budget to pay your card bill in full each month, the best choice for a credit card would be to utilize one that has no annual fee with the kinds of rebates or rewards that fit your lifestyle and financial goals. “You also want to make sure the creditor grants you a ‘grace period’ before incurring interest charges; not all card companies do that nowadays,” said Karen Porter, a Senior Consumer Affairs Specialist at the Federal Deposit Insurance Corporation. With cards that have no grace period, you always pay interest starting from the date of purchase.

If you don’t expect to pay off your card balance in full most months, you might want to go for a card with a lower Annual Percentage Rate (APR) and the right mix of rebates or rewards to justify any fees you would have to pay. Also, if the card has a low, introductory interest rate, be sure you know when the new, higher rate will take effect and what that rate will be. One thing to remember is that credit cards with offers of “zero-percent interest” on purchases for a certain amount of time could end up being more expensive if you don’t pay the balance in full before the interest rate increases.

“When considering a balance transfer, make sure you know all the details and terms of the transfer,” said Nancy Tillmon, an FDIC Consumer Affairs Specialist. “Online credit card calculators also can help you compare the terms of existing accounts against the details of the new card. Comparing card products could save you money.”

It’s important to understand and be cautious of all fees. For example, credit cards that offer generous “rewards” (such as points or cash back) might have high annual fees or higher interest rates. “The terms and conditions of earning and using the rewards can be complicated,” warned Porter. “Rewards cards may also cause you to overspend just to earn the points.”

Other fees to think about include late fees, over-the-limit fees (for transactions that would put you over your credit limit), and balance transfer fees.

For more information on choosing and using credit cards see New Realities, New Directions for Credit Cardholders.


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