Credit Card Offers: How to Find the Catches

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With credit card offers mailed to Americans last year hitting a record of more than 6 billion, come-ons to entice you to sign up for yet another piece of plastic have gone beyond the standard 0 percent teaser rates or cash-back rewards. Now they may include rebates on your dog’s vet bills or offers of a free Dell laptop computer.

Don’t get sidetracked by those goodies. Most of the facts are laid out in a few sections of fine print and in a disclosure box such as the one below, from a May offer for Chase’s Visa Platinum card. The disclosure box must be included in all credit card offers, thanks to Sen. Charles Schumer, D-N.Y., sponsor of federal legislation mandating that credit card interest rates and fees be spelled out in a standard, plain-English format and in a type size big enough to be easily read. That’s where you’ll find the less than advantageous aspects of the offer.

TROUBLE SPOTS







1. The annual percentage rate (APR) that applies to purchases is listed at the top of the disclosure box, but that’s not the only applicable rate. You should also note the rates you’ll be charged for cash advances, balance transfers, and other transactions. Because payments often are allocated to pay off lowest-rate balances first, teaser rates that apply to both balance transfers and new purchases are the best deals. And a “fixed rate” is fixed until the bank gives you at least 15 days’ notice that it isn’t.

Don’t forget the default APR, which traps you like quicksand if you make late payments (even to other lenders), exceed your credit limit, or if your credit score drops based on your relationships with other lenders. Such a slipup with Chase, for example, could more than triple your rate from 8.99 percent to a painful 31.49. “Issuers with outrageous default penalties are just hoping you make a mistake, which even the most responsible customers do occasionally,” says Curtis Arnold, publisher of Cardratings.com, a resource for comparing credit card offers.

2. The grace period is the number of days you have to pay your bill from the end of the last billing cycle until interest charges accrue. This offer grants a vague “at least 20 days.” Look for a card offering 25 days.

3. Finance charges these days are usually calculated using the average daily balance. A red flag: Consumers who alternate between paying card bills in full and carrying a balance should avoid the two-cycle average-daily- balance method of computing interest, as in this offer, because it can produce finance charges that are up to twice as big.

4. Fees cover practically every move you make. For balance transfers, you usually pay a 3 percent fee up to a specified cap -- for example, the $75 in the offer above. A few major issuers are eliminating caps for some cards. Without a cap, a $10,000 transfer would cost you $300. Late fees -- here as high as $39 -- also are a danger area, accounting for 70 percent of the $16.4 billion in penalty fees that U.S. cardholders paid last year, according to R.K. Hammer Investment Bankers.

Other gotchas are embedded in small print elsewhere. This card offer opens with a promise that you are “Pre-Approved.” But if you squint to read the explanations in a section titled “Terms and Conditions,” you’ll discover that approval is based on a review of your credit report and application, and there’s no guarantee you’ll receive the promised low rates or even get a card at all. In this offer, you’ll also learn in a footnote that Visa’s promise of “zero liability” for unauthorized card purchases does not apply to ATM transactions.

Don’t limit yourself to offers that arrive in your mailbox. Even though you may be inundated with applications from a handful of big banks that dominate the market, you’re likely to find more consumer-friendly deals at a credit union. Or you can hunt for them on your own at Web sites such as CardRatings.com, Bankrate.com, and CardWeb.com, where you can do some comparison shopping for better terms, often offered by smaller issuers.

Copyright © 2002-2006 Consumers Union of U.S., Inc.

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