Know the terms & conditions!
A big thanks to Mom over at Wide Open Wallet for this great guest article!
Included in every credit card offer is a chart just like this one. If you know what you are looking for you can easily compare all those pre-approved offers you get in the mail every day.
The most important sections are the first three. Everything else is pretty standard for all offers unless your credit is in need of a make-over.
The first section, labeled “Annual Percentage Rate (APR) for purchases”, gives us the interest rate for purchases. In this example it says the rate will be 8.99 fixed. Notice the little “a” next to it? If you go down to the bottom of the paper to the corresponding little “a” it tells us that this rate is subject to change at any time and that one reason they may decide to change the rate is from changes in your credit.
The next section is labeled “Other APRs” This gives us the interest rate for other balances on the card that are not purchases. In this example the Balance Transfer rate is zero percent until the billing cycle that includes June 1st 2009. After that it goes to 8.99% fixed. This is important. Not all balance transfers go to the purchase rate. Some go to a rate lower than the purchase rate, some go to the cash rate. Make sure you know what the new rate will be and when. Also, notice that it is zero percent until the billing cycle that includes June 1st. You can squeeze out an extra few weeks at zero percent if you call and request that your statement be printed as close to the end of the month as possible. Ideally, the statement that includes June 1st won’t be printed until June 30th. You want to hang onto that promotion as long as possible.
Also in the “Other APRs” section it gives the Cash Advance APR as well as the Default APR. (I’ll come back to the Default rate in a second) Here is says it is 23.49% variable and 31.40% variable, respectively. If we hop on down to the next section we can see that the variable rate is really the Prime Rate plus 15.99% for cash and the Prime Rate plus 23.99% for the default rate. There is also a little “c” in this section. Down at the bottom the corresponding little “c” tells us how and when the bank determines the Prime Rate and what it was 7.5% when they were printing this offer.
Now back to that pesky Default Rate. In the “Other APRs” section where it lists the Default Rate it also says “see explanation below” with a little “b”. This is a very important section. Never get a credit card without making sure you understand what can trigger the Default Rate. Down below next to the little “b” it explains that they can assess the Default Rate if even one payment is late or your account goes over limit even once. And the real kicker is that it doesn’t even have to be a late payment on this account. It could be on any account you have with this bank. Ouch. It doesn’t say they will, it just says they can. You will have to call and find out what the exact rules are for each bank. While you are on the phone also ask how you return to your normal rate if you ever fall into the Default Pricing. For example, at Bank of America you will be assessed the Default Rate if your account goes past due or over limit twice in a six-month period. Then the Default Rate is removed on a case-by-case basis and you have to call to have your account reviewed.
I would also like to quickly go over two other sections that may be of interest. First the section titled “Annual fee”. This example doesn’t have one. Which, of course, is ideal. The only time you should pay an annual fee is if you are getting rewards or rebuilding your credit.
In the “Transaction fee for balance transfers” section it will let you know if there are any fees for balance transfers. Three percent with a $5 or $10 minimum and a $99 maximum is pretty standard. This offer goes above and beyond by waiving the fee if you request the balance transfer along with your application. Normally, I don’t recommend doing that since you don’t know what your limit is going to be, but if it saves you the fee then you might as well.
Now you are ready to spot a winning card a mile away. Hope you get a good one!
Related posts:
- 11 Credit Card Terms Everyone Should Know!
- Nominal Interest Rate v. Effective Interest Rate
- Credit Card Review: Discover® More(SM) Card
- Trick or Treat?: Bank of America Rolls out Basic Visa Just in Time for Halloween
- Where did all the Credit card offers go?
Thank you!!
Good information for someone unaware of such things (I’ve ran into entirely too many in my experiences), if only the papers would front page something like this to inform the masses.