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.
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? 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.