10 Questions to Ask Before Accepting a Credit Card Offer 10 Questions to Ask Before Accepting a Credit Card Offer
Competition in the credit card industry is so extreme; credit card companies are ready to offer all types of perquisites, rewards and rebates to... 10 Questions to Ask Before Accepting a Credit Card Offer

Competition in the credit card industry is so extreme; credit card companies are ready to offer all types of perquisites, rewards and rebates to get your business. This doesn’t mean you shouldn’t be selective. Choose the wrong card or use it in the wrong way, and the endless possibilities of having access to credit can quickly transform into an evil, joy-sapping debt debacle.

Before you sign that credit card application, it’s worth asking your credit card company a few smart questions. Here are ten to get you started.

#1 Why do I need your credit card again?

Annual credit card fees

Since credit companies don’t seem to have a problem trying to convince you how much you need their latest card, it seems a reasonable question to ask. The first question we should ask when shopping for a credit card is “Why am I applying for this card?” Be honest now and ask yourself what kind of a credit card user you are.

For instance, if you tend to carry a balance on your credit card and want to reduce the interest you pay, you need a credit card that offers a low APR and a 0% Introductory interest rate, even if that means paying a higher annual fee.

On the other hand, if you pay off your credit card balances every month, you don’t have to worry about the credit card’s APR, because you’ll never have to pay any interest, but you do want to look for a card with a low annual fee and a competitive rewards program.

#2 What interest rate and credit line will I get?

How old must you be to get a credit card

Most cards advertise a range of interest rates. Which rate you will get will depend on your credit worthiness.

If you carry a balance, the difference between paying 14% and 23% can be huge. If you only pay the minimum amount (3% of balance) on a $5,000 balance, you’ll pay $5,265 more in interest and take 8 years and three months longer to pay your balance with a 23% rate than with a 14% rate.

Knowing what your interest rate will be before your application is approved can be tricky. Your best option may be to apply for the credit card over the phone and demand to know what your rate will be before the account is opened.

#3 What is your penalty interest rate?

How many credit cards can you have

Penalty interest rates, also known as default interest rates, are the interest rates credit companies apply to consumers who default on their minimum payments. Penalty rates start to apply once you’re 60 days past due on your minimum payment and continue until you make six consecutive minimum payments on time.

Unbelievably, this is an improvement. Before the Credit CARD Act of 2009, financial institutions didn’t have to wait 60 days to hike your rates or give you back your original rate after six months of good behavior.

#4 Balance transfer fee

How to choose the best credit card

Some credit card companies are willing to entice customers with a low or zero interest rate on the credit card balance they already carry when opening a new account. What credit card companies don’t advertise quite so aggressively is their balance transfer fee, which usually ranges from 2% to 5%.

The difference between paying a 2% or a 5% transfer fee on a $5,000 balance is $150. Although not as dramatic as when you consider a card’s APR, it’s still a chunk of change.

You don’t have to pay balance transfer fees right away. The “fee” just gets added to the balance being transferred, which begs the question of why they are called fees in the first place. The reason is that companies don’t have to include “fees” when they calculate a card’s APR.

Charging a balance transfer fee provides a source of revenue while maintaining the attractive 0% introductory APR intact. When shopping for balance transfer cards, remember there is no difference between a credit card with a six-month 0% APR transfer rate and a 2.5% balance transfer fee and a credit card with no balance transfer fee and a 5% interest rate on balance transfers.

#5 Do you report to all three credit bureaus?

Choosing a new credit card

A great way for consumers to repair their credit is to make regular payments on a credit card. Even if the only credit card you qualify for has a high annual fee, no rewards program and high interest rates, it may still be worth getting for the credit benefits it offers. However, that only works if the credit card company reports your account activity to a credit bureau, preferably all three of them.

#6 Will that be a soft or hard pull?

Credit card types

Credit card companies determine the eligibility of consumers by reviewing their credit history and score. The problem is that credit score algorithms, such as FICO, treat multiple inquiries, also known as hard pulls, as a tell-tale of risky consumers who may be overreaching their credit.

However, it doesn’t have to be this way. Credit card companies have the ability of performing another type of credit inquiry, called a soft pull, which doesn’t affect your credit score.

Soft pulls provide exactly the same information about your creditworthiness as hard pulls and are widely used by credit card companies to determine who they pre-approve for their credit card offers. Soft inquiries can occur without your permission or even knowledge. The only silver lining is that they don’t hurt your credit score.

#7 What is your annual fee? And next year’s fee?

Best credit cards in US

Some credit cards, usually the ones with the best rewards, charge an annual fee. These fees can be as low as $15 or as high as $2,500, depending on the company and the benefits they offer.

If you decide to go for a credit card with an annual fee, make sure the benefits are worth the cost. This is usually a no-brainer the first year because credit card companies offer juicy sign-up bonus and will generally waive the annual fee the first year. However, they won’t be so kind the second year, so keep track on when the annual fee is charged – usually around your card’s anniversary – and determine then whether it’s worth sticking with for another year.

#8 Great rewards program, but where can I spend all those points?

Credit card companies

Not all reward program points are made equal. Although a good rule of thumb is that every point is worth a cent (10,000 points =$100), this doesn’t work for every credit card. Some rewards programs offer generous sign-up bonuses and allow you to earn points at a high rate, but you can only redeem the points at particular establishments or with certain airlines.

#9 When do you reduce or revoke rewards?

Best credit card rewards

This is a particularly important question if you’re getting a card for the points or rewards it offers. Credit card companies usually include a clause in the credit card agreement that allows them to reduce or revoke your points for practically any reason. In practice, credit companies don’t usually do this. For some reason they’ve realized that actually revoking people’s hard-earned points for no real reason is bad for business. This doesn’t mean they won’t do it, if you give them a reason to.

#10 Always compare cards first

How long do credit cards last

Credit cards can be a great source of rewards, savings and travel perks. However, they can also be a huge source of stress and debt, if not used properly. Be smart and do your homework before applying for a new credit card.

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