Ten
Things to Think about Before: Getting a New Credit Card . . .
1. Don't
apply for a credit card until you are
ready. Unfortunately, bankruptcy may not have
permanently resolved all of your financial problems.
It is a bad idea to apply for new credit before you
can afford it.
2. Avoid accepting too many offers. There is
rarely a good reason to have more than one or two
credit cards. Having too much credit can lead to
bad decisions and unmanageable debts, and it will
lower your credit rating. This can make it harder for
you to get other lower
interest rate credit cards or loans. Avoid
accepting a credit card just to get a discount at a
store or a "free" gift.
3. Remember that lenders are looking for
people who run up big balances, because those
consumers pay the most interest. You may find
that credit card companies are pursuing you
aggressively by mail and phone even though you
filed bankruptcy. Do not view this as a sign that
you can afford more credit. The lender may have a
marketing profile telling them you are someone who
is likely to carry a big credit card balance and pay a
good deal of interest. Or they may see you as a good
credit risk because you cannot file a Chapter 7
bankruptcy again for quite a few years.
4. Interest rate is important in choosing a
card, but not the only consideration. You should
always try to get a card with an interest rate as low
as possible. But it is rarely a good idea to take a new
card just because of a low rate. The rate only
matters if you carry a balance from month to month.
Also, the rate can easily change, with or without a
reason. Remember that even the best credit cards
are expensive unless you pay your balance in full
every month. And other credit terms can add to your
your cost, like annual fees, late charges, over-the-limit
fees, account set-up fees, cash advance fees, and the
method of calculating balances. Sometimes a credit
card that appears cheaper is actually more expensive.
5. Beware of temporary "teaser" rates. A teaser
rate is an artificially low initial rate that applies only for
a limited time. Most teaser rates are good only for six
months or less. After that, the rate automatically goes
up. Remember that if you build up a balance under the
teaser rate, the much higher permanent rate will apply
when you repay the bill. This means that the
permanent long-term rate on the card is much more
important than the temporary rate.
6. If
your rate is variable, understand how it may
change. Variable interest rates can be very confusing.
Some variable rate terms can make your rate go up
steeply over time. Read the credit contract to
understand how and when your rate may change. And
don't be misled by advertisements that claim "fixed
rate", as this may mean the rate is fixed only until the
lender decides to change it again.
7. Check terms related to late payment charges
and penalty rates of interest. Most credit card
contracts have terms in the small print for late charges
or penalty interest rates that increase if you make even
a single late payment. Try to avoid cards with late fees
as high as $25-35 or penalty interest rates of 21-24% or
higher. Even if you are not having financial problems,
these terms may become important, because they apply
equally to accidental late payments.
8. Get a card with a grace period and learn the
billing method. It is important to understand how
you will be billed. Look for a card with a grace
period that lets you pay off the balance each month
without interest. If the card does not have a grace
period and interest will apply from the date of your
purchase, a low interest rate may actually be higher
than it looks. The terms of the grace period are also
important, as it may not apply to balance transfers
and cash advances. And look out for different
interest rates that may apply depending upon the
type of charge: these usually include a higher rate for
cash advances.
9. Don't accept a card just because you qualify
for a high credit limit. It is easy to assume that
because a card offer includes a high credit limit, this
means the lender thinks you can afford more credit.
In fact, the opposite may be true. Lenders often give
high credit limits to consumers hoping that they
think will carry a bigger balance and pay more
interest. You must evaluate whether you can afford
more credit based on your individual circumstances.
10. Always read both the disclosures and the
credit contract. You will find disclosures about
the terms of a credit card offer, usually in small print
on the reverse or at the bottom of the offer. Review
these carefully. However, the law does not require
that all relevant information be disclosed. For this
reason, you must also read your credit contract,
which comes with the card. This will include terms
such as late payment fees, default rates of interest,
and a description of the billing method. Since these
terms are not easy to understand, you may want to
call the lender for an explanation. Or better yet,
refuse credit with too many complex provisions,
because those terms are likely to work to your
disadvantage.
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