Credit card companies love to dangle juicy offers in front of you. You might be “preapproved” for a zero-percent interest credit card or valuable sign-up bonus. Maybe it’s even that fancy “gold” or “platinum” card you never knew you were eligible for.
Unfortunately, some offers that sound too good to be true probably are. The amazing benefits you see in the bold lettering aren’t always what you get once you understand the fine print.
To sort out the credit card deals from duds, take a closer look before you apply, and be sure to keep these five red flags in mind:
- Rates that aren’t guaranteed
One of the big draws of new credit cards is a low interest rate. But what you might not notice are the subtle caveats to the special rate that’s prominently displayed. Some offers will have “as low as” printed in small letters in front of the APR. You might also see asterisks and superscripts that refer you to the fine print, where the text explains the best interest rate is only available to applicants with the best credit. In other words, the rate they’re using to lure you in isn’t necessarily the one you’ll get.
The best defense? Read the fine print, especially the “Rates and Disclosures” information. It’s not exciting, but it will reveal what, if anything, is actually guaranteed. Banks are legally required to furnish this information in the easy-to-read format shown on the website of the federal Consumer Finance Protection Bureau. And if you’re uncomfortable because you can’t tell what the ultimate rate will be, don’t apply.
- Fool’s gold
“Gold cards” have been around for decades, with American Express debuting theirs in 1966. Since then, credit card companies have added silver, platinum and even palladium to the list of precious metals used in card names.
While such cards may have indicated prestige in the past — and there are still elite cards requiring exceptional income and expenditures — most precious-metals labeling is meaningless.
Solution? Choose a credit card by comparing the benefits that really matter, like low interest rates, low fees or rewards.
- Bogus business credit cards
Offers for small-business credit cards might seem like a great way to track business expenses and develop a credit history for your company. But these cards seldom live up to the hype and offer fewer consumer protections than consumer cards.
With most small-business cards, it’s your personal credit on the line, not that of your business. So using it does not create or develop a credit file for your business.
In addition, small-business cards lack important protections that consumer cards have. The Credit CARD Act of 2009 applies only to consumer cards, which means your business card can still be hit with fees and rate hikes that would be illegal for your personal plastic. So even if a particular business credit card has advantages, such as enabling you to track business expenses separately, you could be sacrificing consumer protections to get them.
- Big bonuses with a catch
It’s easy to get drawn in by the sign-up bonuses offered on new cards. You might see an offer of $150 back or 25,000 airline miles just for opening an account. But there’s often a catch.
In many cases, you’ll need to ring up a certain amount on your card within a specified time period, like $1,000 in purchases to get that $150, or $2,000 charged to earn 25,000 airline miles. While the details vary, completing these offers as stipulated may be difficult or even impossible, depending on your budget.
Percent cash-back bonuses might not be all they seem, either. Some offers boast “up to 5 percent back” on your purchases, but that may be only at certain retailers, and not for every purchase you make. Some cash-back deals might be for a limited period after you open the account and may cap how much you can earn.
When it comes to reward cards, understand what it takes to get the advertised perk. Consider the reason rewards exist: to make people spend (and borrow) more than they otherwise would. If that’s a trap you feel likely to fall into, a rewards card may be, in fact, punishing you.
- Not-so-special offers
Credit card offers come crammed with language that makes you feel like you’re getting a special deal. Envelopes might be stamped with “Important” or “Confidential” to heighten the urgency. Once opened, you might be excited to find you’re “preapproved” for a new credit card.
Unfortunately, being “preapproved” doesn’t actually mean the new card is yours. In fact, it doesn’t really mean anything. You’ll still need to apply for the card and go through the whole approval process as you otherwise would.
Be careful when choosing a card because it appears to be a special offer made just for you. It may just be another trick to reel you in.
By Jeffrey Trull