Some people think credit cards should be avoided like the plague; but the truth is, getting a credit card can be a smart financial decision. These accounts can establish your credit history, and carrying a credit card is often safer than carrying cash.
But just because credit cards can be somewhat useful doesn’t mean every credit card is a good deal. One of the worst things you can do is apply for a credit card at random. No two credit cards are built the same, so it’s important to read the fine print and know exactly what you’re getting into.
Whether you’re applying for your first credit card or you’re adding a new card to your credit portfolio, here are five signs of a bad credit card deal.
Credit Card Features a Variable Interest Rate
Some people pay off their credit cards every month and never have to pay interest, so they don’t care about fixed or variable interest rates. However, if you carry a balance from month-to-month, then you should be concerned with interest rates. In this case, you’ll make out better with a fixed-rate credit card.
A variable rate credit card has an interest rate that’s tied to an index, which means your rate can increase at anytime based on the market. And when your rate increases, so does your cost of carrying a balance.
Understand, however, there’s no such things as a “true” fixed-rate credit card. Even with a fixed-rate, your credit card issuer can increase your rate. But a fixed-rate doesn’t fluctuate as often as a variable rate, and when it does, your credit card company is required to provide a 45-day notice of any rate change.
Beware High Credit Card Fees
Credit card issuers have to make money, so it’s not unusual for a credit card to charge fees, such as a balance transfer fee and a foreign transaction fee. But this doesn’t mean you should settle for any and all fees.
It’s important to shop around and compare credit cards before applying. Some people don’t pay attention to the fine print, but this is where you learn about various fees and penalties charged by the credit card company. You might not find a credit card with zero fees, but you can find cards with minimal fees. This includes lower or no annual fees, no over-the-phone payment fees and no foreign transaction fees.
Comparison shopping is especially important if you’re applying for a secured credit card to establish or rebuild your credit history. These types of credit cards can be expensive due to high annual fees, set up fees and monthly maintenance fees.
Don’t Be Fooled by Introductory Rates
Many credit cards offer low introductory rates to attract new customers. This might include 0% interest on balance transfers and purchases for the first 12 to 18 months. It doesn’t get any better (or cheaper) than zero percent interest, but don’t just look at the introductory rate when deciding the right credit card for your wallet.
The credit card rate will switch to the standard APR after the introductory period, and the standard rate could be as high as 20% in some cases. Choose a credit card that not only offers a low initial rate, but also a low, competitive rate after the introductory rate period ends.
*A low APR is subject to credit approval
Skip Credit Cards with No Rewards Program
A rewards program isn’t that important if you never use your credit card. But if you prefer using your credit card for everyday purchases and paying off the balance in full every month, you need a credit card with a rewards program.
With these programs, you earn points or miles for every dollar you spend, and once you accumulate enough points, you can redeem these for merchandise, gift cards, statement credit or cash. You’re basically getting paid to swipe your credit card, plus rewards points can help you save on future purchases. Since just about every credit card company offers at least one rewards program, it only makes sense to apply for a card that gives back.
Don’t Waste Time on Creditors That Don’t Report Activity
It might come as a shock, but banks are not required to report your activity to the credit bureaus. If you’re building credit or reestablishing your credit history, you need as much positive activity on your credit report as possible. If the bank doesn’t report your timely payments, your credit score can remain the same and never improve. Read the fine print on applications to see if a bank reports to the bureau, or call the bank directly to confirm how often it reports account activity.
A credit card is convenient and serves a valuable purpose, but only if you choose the right one. Comparison shopping may seem like a tedious, pointless step in the process. But the right card can save you money now, and in the future.