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These
days, there's a good chance that you've
received your fair share of "pre-approved"
credit card offers in your mailbox.
Competitive banks are bending over
backwards to entice consumers with low APR
rate or other fringe benefits. Initially,
these may seem like a good deal but
signing up for a credit card just because
you were pre-approved may not be in your
best interest.
Below are 7 things you need to consider
before applying for a credit card. While
most of these tips may seem like common
sense, the idea is to help consumers
recognize the good and the bad about
consumer credit cards.
1. Know
Your Credit Profile and FICO
Score.
Most consumers have a pretty good idea of
how their credit report looks,
unfortunately few actually have read their
report. This will let you know how your
creditors have reported your credit
history. According to a published report
by the Federal Trade Commission (FTC),
they estimated that over 90% of credit
reports contain at least one error. These
errors and misinformation can have an
obvious negative effect on your credit
profile and your FICO score.
The better your credit profile or FICO
score, the easier it is to get credit at a
good deal. For example, most consumers
would like to get a 0
ARP credit
card
but the fact is, most banks and lending
institutions will not offer this rate to
consumers with a FICO score of 740 or
lower. Of course, each credit card issuer
has a difference criteria. Bottom line,
know what's in your profile first to know
what type of credit you can expect to
receive. Luckily Congress, passed a law
allowing consumers a chance to review
their credit
report
once a year.
The Fair Credit Reporting Act requires
each of the nationwide consumer reporting
companies -- Experian, Equifax, and
TransUnion -- to provide you with a free
copy of your credit report once every 12
months.
2. Know the
purpose of the Credit Card
Just
because you receive a credit card offer in
the mail, doesn't mean you should
immediately complete the application.
Before you sign on the dotted line, you
first need to ask yourself a few questions
such as: What purpose will this be used?
What are the pluses and minuses of
acquiring the card? Am I disciplined to
maintain this card over the long term?
In some situations, a credit card bring
added value and actually be a source of
revenue, For example, let's say you have a
monthly expenditures of $2,000. By using a
credit card which offers 1.5% cash back,
each month you're gaining $30 -- provided
you pay the bill in full each month. Over
a year that adds up to $360; in three
years it totals $1,080 in cash back.
Combined with a no annual fee, this credit
card actually works in favor for the
consumer.
3. Be Weary
of Free or Low Introductory Credit Card
Offers
Banks
are greedy and they're known for using
enticements to get their credit card in
your wallet and your money in their bank.
Tempting as it may appear, most banks
offer a low introductory rate and other
perks for a limited time -- READ the
length of time the offer is valid.
Solicitations may encourage you to accept
before the offer expires however... before
you accept any invitation-by-mail, always
shop around to get the best deal.
4. Watch
Out For Hidden Fees.
For
those with poor to moderate credit, you
also need to look for hidden fees such as
an annual or monthly statement fees. Some
banks may charge as much as $8 per month
just for the convenience of sending you a
monthly payment. Adding insult to injury,
these type of credit card programs also
charge an astronomical interest rate.
Even more profitable for banks are the
newly added "late payment" fees which can
easily add up to $35 per incident. Then
there's the ever popular "over-the-limit"
fee which only adds salt to the wounds.
It's no wonder some consumers get buried
in debt. Nonetheless, it's important to
know what fees you may charged if you make
a mistake or two.
5. What's
the REAL Long term Interest (APR) rate
The
APR (annual percentage rate) is a measure
of the cost of credit. In essence, this is
the cost to borrow money from the bank.
With a good credit profile, you can
usually obtain a decent rate (prime + 4%).
The lower your FICO score, the higher your
APR will be because the will consider you
a greater risk.
Some credit card plans allow the issuer to
change your APR when interest rates or
other economic indicators - called indexes
- adjust accordingly. Because the rate
change is linked to the index's
performance, these plans are called
"variable rate" programs. Rate changes
raise or lower the finance charge on your
account.
6. Length
of Grace Period (if
any)
A free period lets you avoid finance
charges by paying your balance in full
before the due date. Knowing whether a
card gives you a free period is especially
important if you plan to pay your credit
card account in full each month. Without a
grace period, a bank may impose a finance
charge from the date you use your card or
from the date each transaction is posted
to your account. This is why it's very
important to read the credit card offer
because these small elements can add up to
higher credit card bills.
7. How is
the Finance Charge
Computed
The bank must disclose the "periodic rate"
- the rate applied to your outstanding
balance to figure the finance charge for
each billing period. There's about four
different ways American banks calculate
your interest rate. The most popular is
the Average Daily Balance. The most
advantageous to consumers is when banks
compute via the Adjusted Balance. You can
learn more by visiting here.
If you've read this far, rest assured you
are much more knowledgeable than most
consumers. In our fast-paced,
gotta-have-it-now society, you can use the
above information to help you locate the
best
credit
card
for your
situation.
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