If you are in search of a credit card that will meet your needs but not ruin your budget or credit rating, you need to do your research and choose a card wisely. There are many decent credit card companies out there, but there are others that you should be wary of.
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With the current state of the economy and the fact that banks have been hit hard and are trying to stay afloat financially, you especially need to be careful of their tricks for making extra money off you. According to an article on MSN.com, many banks have raised interest rates, ended their reward programs, and are being tougher on consumers for late payments.
What store cards are preferable?
You need to be especially careful when considering a credit card offered by a specific retailer. These tend to have exceptionally high interest rates, often starting at over 20%. Stores will tempt you to apply for their cards with offers of money off your purchases and special cardholder coupons.
You should be especially wary of store cards that you get when you make a purchase with the promise of no interest or payments for a specified amount of time. You often will not receive statements with these cards. If you are as much as a day late once, you are expected to make a payment and the amount you pay in interest and late fees could be very substantial.
A better option, if you must get a store credit card, is to find one that is connected to one of the large credit card companies. These often come with the same store discounts, plus offer rewards for use in the store, and can be used anywhere, as opposed to the specific store alone.
Are cards that offer cash back rewards recommended?
Many banks are now offering cash back credit card rewards as part of their incentives for signing up for their credit card. Some cash back offers are legitimate and could actually help you save money if you spend wisely and pay off your balance each month. The cash back cards you should avoid are those that require you to carry a balance in order to receive your cash back. These cards tend to have high interest rates, which will negate any savings they bring to you.
What should I do if my options are limited due to poor credit?
Just because you have a low credit rating, it does not mean you have to settle for a credit card with a high APR or many fees. Subprime credit cards, which cater to those with poor credit scores, come with many hidden fees and interest rates that will affect your wallet if you do not pay your entire balance every month. It is these types of cards and their many fees that led to the Credit Card Act of 2009, which states, among other things, that cards must not have fees that equal more than 25% of a card’s credit limit. For more information on the Credit Card Act, visit the Federal Reserve’s website.
If you have poor credit, you do not have to settle for a subprime credit card. Instead, you should consider a secured credit card where your credit line is equal to the deposits you make. Just make sure you always read the fine print. These cards are better but may still come with fees.
What other types of cards should I stay away from?
Prestige credit cards, often referred to as “Black” credit cards, cater to wealthy individuals and come with high annual fees. They advertise greater benefits but in reality often have the same benefits as some cards with no fees at all.
In general, you should watch out for any cards that come with several miscellaneous fees such as account set up fees, program fees, and participation fees. In addition, credit card companies that do not report to the major credit bureaus may seem tempting because your credit score is not hurt if you are late with your payments, but if you pay your bills on time, you will not build credit either.
If you have a card with high fees or a high interest rate, use our credit card finder to find online credit cards to find better deals!
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