What Do I Need to Watch Out for When I Apply for a Credit Card?

Pre-Approved Doesn’t Mean Approved#

A pre-approved credit card offer means only that a preliminary review of your credit report showed you met the creditor’s basic requirements. The creditor still reviews your full application before the card can actually be issued, so a pre-approved offer is not the same as a final yes.

Why Your Credit Limit May Be Lower Than the Application Said

An application may say your credit limit would be $7,500, and yet the card you receive has a limit of only $3,000. Most likely, the application said you would receive an account with a credit line of up to $7,500. Once the creditor determined your credit profile, it may have decided that you did not meet all of its requirements for the full credit line.

A Fixed APR Can Still Go Up#

A credit card advertised with a fixed APR can still have its rate raised, as spelled out in the cardholder agreement, up to a default APR that can be 30 percent or more. This higher rate is often triggered by events like a late payment or going over your credit limit, so it pays to read the agreement closely before you apply.

The Grace Period Only Helps If You Pay in Full#

A credit card grace period is the time when no finance charges are added to your account. This only applies if you pay your full balance by the due date shown on your statement. If you carry any balance past that date, the grace period protection does not apply.

Balance Transfer Fees#

If a credit card offer includes a balance transfer option, check the fee structure before you move any balance over.

Credit Card Rewards: Be Sure to Read the Fine Print#

Airline miles, auto rebates, shopping rewards and cash back incentives come in all shapes and sizes. But unless you know exactly what you’re getting into, these rewards can end up costing you a lot more than you bargained for.

Points and miles usually build up with each dollar charged, and in a points-based program one dollar usually equals one point. In Cambridge Credit Counseling’s example, a cardholder needs 25,000 points to get a free domestic airplane ticket, which means charging $25,000. Like most reward cards, that card does not let points be saved: points not used by the end of the year are lost, and the count starts over at zero.

Things to look out for:

• Most rebate-type cards tend to have interest rates that are 5% higher than non-rebate cards. If you carry a balance from month to month, you would be better off shopping for a lower interest rate credit card.
• Some issuers offer a bonus for carrying a balance, such as 3% cash back or a 10% annual interest rebate. This lures consumers into paying a higher interest rate in return for a small rebate.
• Annual fees for reward program cards are often as high as $50. The fees are rarely made up for by rewards.
• In most cardholder agreements, if you’re late with a payment, you could lose all the points you earned for that month, or have your points frozen until you pay a penalty fee.
• Some companies charge an “inactivity fee” for not using the card.

As with any credit card, make sure you read and understand the terms of the card before you use it.

Credit Card Tips for College Students#

College students are a prime target for credit card companies. Establishing a credit history is important, as long as students know how to use credit properly and understand how misuse of credit cards can hurt them in the long run. These tips from Cambridge Credit Counseling can help you establish good credit without getting into debt:

• Credit cards are not for pizza and beverages.
• Make every payment on time.
• Decline offers to increase your credit limit. There is no need for a $5,000.00 limit when you are living in dorms or enrolled in a meal plan.
• If you already have a balance on your credit card, pay more than the minimum monthly payment. A balance of just $1,000.00 at 15% interest will take you over seven years to pay off and will cost you $612.00 in interest.
• Do not count on family members to bail you out.
• If you cannot pay off your balance in full when you get your next statement, stop charging.
• Whether you choose to carry a balance or not, keep it low enough that you can pay it in full at any time.

Proper Usage

Credit cards can help a college student create a strong credit history, but only if they are used properly. To begin, set a budget for yourself to determine your expendable cash, or allowance, for the month. Then use your card in the way that fits your financial personality:

• If you are a good record keeper, you may use your card for everyday purchases, always staying within your monthly allowance, and pay the balance in full each month so that you avoid building debt. Keep a journal of your day-to-day expenditures so you do not go over your monthly allowance.
• Otherwise, make one or two purchases that you can pay off in full at the end of each month to establish a positive payment pattern, and begin keeping a journal of your day-to-day expenditures. When you feel comfortable, move up to the first method.

Using your credit cards responsibly can help you, and using them improperly can hurt you.

What to Do Next#

Before you sign up for any credit card, read the full cardholder agreement so you understand the fixed APR terms, the default APR triggers, the grace period rules, and any balance transfer fees. Cambridge Credit Counseling offers educational resources to help you understand these terms so you can make an informed decision about any credit card application.