Watch Out for "Too Good To Be True" Credit Card Offers

By Remar Sutton, DCU StreetWise Spokesperson

They arrive in the mail three or four times a week – enticing credit card offers. "0% for 6 months!" "2.9% till January 2003!" "No fee for balance transfers!"

Sound too good to resist? That's exactly what the card issuers hope you'll think – and act on! But before you leap to fill out the application, consider all the following gimmicks sometimes lurking within the tiny print of most "too good to be true" credit card offers:

Receiving a different card than the one applied for.

The promo may offer a gold or platinum card with no annual fee, 2.9% intro interest rate and 10.9% fixed APR thereafter. But when your card arrives, it is just a "basic card" with a credit limit of $1,500, an annual fee of $35 and an APR of 22.9%. Congratulations, you have been a victim of the asterisk * (* "with approved credit"). If you don't meet the card issuer's criteria (and only they get to judge what those criteria are), then you may receive a very expensive card. Decline the offer or cancel the account immediately.

The disappearing low introductory rate.

Most cards offer a low introductory rate only for a limited amount of time. That introductory rate may apply only to the "balance transfers" they want you to make, or it may apply also to new purchases. But at the end of the intro period, that interest rate will rise – and that higher rate will then be applied to all outstanding balances. That long-term rate, which you may have to search for, but must be disclosed at the time of the offer, may be higher than your current card.

Annual and balance transfer fees raise effective interest rate.

Though they may offer a low introductory rate, many cards charge either an annual fee, a balance transfer fee, or both that effectively raise the interest you are paying. If you pay a $35 annual fee, and a 2.5% balance transfer fee on a transfer of $1,000, for example, you have just added 6% APR to whatever rate you agreed to pay.

Higher interest rates for cash advances and new purchases.

Checking the small print of most credit card offers reveals that cash advances never receive the lower introductory rates. Instead the rate for cash advances on many cards is as much as 19.9% APR or higher. Many cards also charge the higher interest on any new purchases beyond the balance transfer or initial "convenience check") made even during the introductory period.

Lower interest rate balances are paid off first.

If the balance on the card was accumulated at different times – for example, a balance transfer at a 4% intro rate, new purchases at 15% and a cash advance at 19% – the card issuer applies your payment first to its fees and the lower interest balances. You continue to rack up interest on the higher rate balances.

Fees, fees, fees.

Fees are the money-makers for the card issuers. These include monthly finance fees (interest), annual fees, balance transfer fees, cash advance fees, late payment fees, over-the-credit-limit fees, convenience check fees, and on and on. Study the fine print carefully for fees and terms related to those fees.

Gimmicks like these are common in those "too good to be true" credit card offers. Be sure to read over any offers very carefully including all the fine print before applying for a card. To read more about sound ways of building your credit, check out the StreetWise articles on credit management.

So, what do you think?

If you find this review helpful, please pass the word to your friends. Also email me with any comments or suggestions.

Remar Sutton

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