Credit card issuance is an extraordinarily competitive business, with thousands of banks in the United States offering cards to consumers of wildly divergent creditworthiness. This practice makes sense - the woman who makes $2 million a year and carries no debt has proved that she is more capable of handling credit than the entry-level wage earner with a five-digit card balance and no payments beyond the monthly minimum.

With the number of credit cards in circulation exceeding the nation's population, card issuers have developed various ways of sweetening the deal. Why apply for Card X when Card Y offers a lower interest rate, accelerated rewards and no annual fee? However, these competitive offers sometimes contain fine print that trips up unsuspecting consumers. Let's examine some of the most common credit card offers, whether you should take advantage of them and what to look out for.

Credit Card Regulations to Protect Consumers
In 2009, when the recession reached what was then its zenith, a number of overextended and indebted consumers were unable to pay their bills. Many were left with dilemmas, such as paying their mortgage versus paying their credit card bill. Because credit card issuers normally charge interest rates that dwarf those of a typical mortgage or a car loan, card issuers became a politically expedient target for the iron hammer of government.

Congress passed the Credit CARD Act, the latest in a series of regulations to go from bill into law. CARD stands for Card Accountability Responsibility and Disclosure, implying that up until the law's passage, credit card issuers were unaccountable, irresponsible and left crucial information undisclosed. The bill mandated such measures as prohibiting issuers from marketing to children and forcing issuers to post their terms and conditions online. The CARD Act also forbade issuers from raising rates on delinquent borrowers.

Low Introductory Interest Rates
The primary benefit offered by credit card issuers eager for your business is the low introductory interest rate. A 0% APR (annual percentage rate) is the typical eye-catching rate meant to entice you. The higher standard rate then kicks in several months or a year later.

An extended offer of no interest may appear to be a godsend for consumers who carry debt. However, for the average household carrying revolving consumer debt of $16,000 on credit cards, the eventual jump in the interest rate makes an already abysmal situation worse.

Annual Fees
Some cards come with no annual fee. Others come with no annual fee for only the first year, or make the absence of an annual fee conditional on how often you use the card. All things being equal, paying nothing to carry a card is better than paying something. However, what about a card that promises accelerated cash back if you pay an annual fee? Are these cards worth the fee? Like most things in life, the answer is, "It depends."

Only pay for a card if you can recoup the benefits.

Balance Transfers
Balance transfers? See above. Are you excited by the idea of moving your balance that's currently earning 19.99% for your card issuer to a card that will pay a different issuer "only" 15.99%? Again, you wouldn't believe how much easier (and lucrative) life gets when you pay the balance in full every month.

The Bottom Line
If you pay your balance in full and on time, any offer that comes with a credit card - double points or cash back - is a no-strings-attached gift.

Related Articles
  1. Savings

    How Volatile Exchange Rates Affect Your Vacation

    Those ever-changing fluctuations can make a difference in anything from your hotel room to an ATM transaction.
  2. Credit & Loans

    Can Corporate Credit Cards Affect Your Credit?

    Corporate cards have a hidden downside. If the company fails to pay its bills, you could be liable for the amount and end up with a damaged credit rating.
  3. Investing News

    What Is The New Credit Card Chip Good For?

    Under current U.S. credit card requirements, credit card issuers are required to issue chip cards as of October 1, 2015. Instead of swiping your card as you do now, you will slide the card into ...
  4. Credit & Loans

    5 Ways to Maximize Your Credit Card Points

    How to get the most bang for your rewards buck.
  5. Investing

    How to Effectively Compare Credit Card Rewards

    There are so many different reward credit cards that are available. Understanding how each type work will help you pick the best card for your needs.
  6. Credit & Loans

    Joint Credit Cards: The Pros and Cons

    A joint credit card may sound like an easy way to split the bills, but make sure you know what you’re getting into first.
  7. Credit & Loans

    Travel Tips: Avoid Exchange Rate Headaches

    How to avoid the most common issues and hassles raised by exchange rates while traveling abroad.
  8. Investing

    Why U.S. Credit Cards Are Getting a Chip and Pin

    With the introduction of EMV technology into U.S. credit cards, consumers should worry less about fraud and counterfeiting.
  9. Credit & Loans

    What Qualifies as a Nonperforming Asset?

    A nonperforming asset is a loan made by a financial institution to a borrower who has failed to make any scheduled payments for at least 90 days.
  10. Personal Finance

    Best Ways to Exchange Currency

    How to avoid fees and get the best deal for your dollar.
RELATED TERMS
  1. Transferable Points Programs

    With transferable points programs, customers earn points by using ...
  2. Luhn Algorithm

    An algorithm used to validate a credit card number.
  3. Roll Rate

    The percentage of credit card users who become increasingly delinquent ...
  4. Truncation

    The requirement mandated by the FTC for merchants to shorten ...
  5. Purchase Money Security Interest ...

    A security interest or claim on property that enables a lender ...
  6. Linked Transfer Account

    Accounts held by an individual at a financial institution that ...
RELATED FAQS
  1. What is the difference between "closed end credit" and a "line of credit?"

    Depending on the need, an individual or business may take out a form of credit that is either open- or closed-ended. While ... Read Full Answer >>
  2. What is the best way to start to rebuild your credit after a bankruptcy?

    Bankruptcies can be devastating to your credit score. Even worse, a bankruptcy will be listed on your credit report for between ... Read Full Answer >>
  3. What were the primary financial crimes involved in the ZZZZ Best case?

    ZZZZ Best was a company started by Barry Jay Minkow that claimed to be a carpet cleaning business. In fact, it was a Ponzi ... Read Full Answer >>
  4. Can a creditor sue me for a delinquent account?

    If a credit card account becomes delinquent, the creditor can sue the debtor for the balance as soon as the delinquency occurs. ... Read Full Answer >>
  5. How do I transfer my credit card history from one country to another?

    It is currently not possible to transfer your credit history to another country if you relocate. The credit metrics used ... Read Full Answer >>
  6. What are some examples of simple interest loans?

    Two good examples of simple interest loans are simple interest car loans and the interest owed on lines of credit such as ... Read Full Answer >>

You May Also Like

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!