Before you accept a new credit card, there are a few things you need to know and to consider:
- Don’t accept too many – Be selective about the cards you choose and don’t have too many at one time. There is rarely a good reason to have more than one or two.
- Beware the Subprime – Sometimes lenders will offer you subprime cards instead of turning you down for bad credit. Generally these subprime cards have high interest rates, expensive fees, and low limits. Avoid those that “help” bad credit (take for instance the cards offered on Bad Credit Offers site) because these can often make your credit worse than it was to start with. Use a trusted source like Consumer Reports to compare credit card offers. There are also lenders that offer you a new card, but add the old debt to the new account. If you have filed bankruptcy and wiped out credit card debt, this action would be a violation of your discharge and you should notify your bankruptcy attorney right away.
- Watch the interest rate because it can change – always find the lowest rate possible. Lenders often have several interest rates for a credit card and constantly change their rates. Terms to understand include:
- APR = interest rate expressed as an annual figure. Most cards have different APRs for different types of transactions such as purchases, cash advances, and balance transfers.
- Variable rates = if your rate is variable, you need to understand how and when it may change. Variable rates tend to change with the rise or fall of a common index rate. (example of variable rate is “U.S. Prime Rate plus 5%)
- “Teaser” rates = an artificially low initial rate that lasts only for a limited time. The 2009 Credit CARD Act requires that a teaser rate lasts at least 6 months, but it doesn’t have to be longer than that. After the time period set the rate automatically goes up and if you build up a balance while a teaser rate is in effect, you will end up repaying the debt at a much higher rate post-teaser.
- Penalty rates = many credit card contracts, even those advertising low rates, have fine print saying your interest rate increases if you make a late payment or go over your credit limit. The new Credit CARD Act will prevent lenders from imposing the rates on your existing balance, unless you are over 60 days late. But the new, higher rate will apply to new purchases and cash advances.
- Fees, fees and more fees – Credit Card companies impose a lot of different fees as well as raise these fees every year (late fees, over-the-limit fees, annual fees, etc.). These fees will significantly increase the cost of a credit card. A card may appear cheaper with a low APR, but with all these types of fees, it could end up being much more expensive.
- Grace period – This is the amount of time in which you can pay off purchases without incurring finance charges. Most credit cards offer this grace period, which if you intend to pay off the balance full each month, it is important to know if the card your looking at has one. With the Credit CARD Act, lenders must mail your credit card statement at least 21 days before the end of the grace period. If you are running close to the end of your grace period, you might want to consider paying, at least for that month, online or by phone.
- Bait and switch offers – Some lenders will send you an offer advertising an attractive, low interest credit card with a high limit, but include with fine print the option that the lender can substitute a less attractive, more expensive card if you don’t qualify.
- Disclosure boxes – You will find disclosures about the terms of a card offer in a box usually on the reverse side of or accompanying the card application. Review these carefully and if the box is on the reverse side of the application make a copy. When you get the card you should see another disclosure box. Review this second box and compare it to your first because sometimes the terms of the offer will change, especially the APR.
- It the terms don’t match CANCEL – You don’t need to keep the credit card if you don’t like the terms. If the lender changes them, you have the right under the Credit CARD Act to reject the changes and close your account. If you have used the card you will need to pay off the balance.
You might not realize it, but when you complete a bankruptcy, whether it’s a Chapter 7 or Chapter 13, you will receive a lot of new credit card offers. You need to be careful and know exactly what you need (not want) and not settle for something designed to take advantage of you just for the sake of their promise to “rebuild” your credit.