A credit card that offers the lowest interest rate or most attractive rewards program isn’t necessarily the best card to apply for nowadays. Despite new government regulations restricting credit card industry abuses, card issuers intent on charging excessive fees and penalties will continue to find ways to do so.
Self-defense: Ask a card issuer the following questions before applying for a card to confirm that it is appropriate for you — and that the issuer does not take unfair advantage of its customers…
1. What’s the minimum finance charge? Carry a very low balance on your credit card and you’ll pay a low finance charge — but how low? Minimum monthly finance charges of 25 to 50 cents are the norm, but some issuers recently have increased their minimums to $1 or even $2. That’s still not a lot, but companies that nickel-and-dime customers in this way tend to do so in other ways, too.
Example: Many Visa cards from US Bank (800-285-8585, www.usbank.com) now impose a $2 minimum finance charge. The bank’s other fees tend to be above average as well.
2. What do I have to do to redeem points (or miles) in your rewards program? What are the restrictions and limits on your rewards program? Do points or miles ever expire?
Favor rewards programs that allow you to redeem rewards automatically when they are earned… and/or that let you redeem points or miles at a wide range of businesses.
Avoid those that require multiple steps to redeem… that cap rewards at very low levels… that place expiration dates on points or miles… or that impose extensive blackout dates.
Exceptional: Fidelity Investment Rewards American Express card (866-598-4971, http://personal.fidelity.com/products/checking/content/cards.shtml) lets you automatically deposit 2% of the cost of purchases into a Fidelity account without any limit.
3. What is the fee on foreign purchases? Does this fee apply only to purchases made when I am out of the US, or also to purchases made within the US if the transaction is processed overseas?
Most card issuers tack a foreign transaction fee on to purchases made outside the US. Avoid those that charge 3% or more even if you do not expect to leave the country. A high foreign transaction fee often suggests high fees in other areas as well. Cards issued by Bank of America now charge foreign purchase fees on domestic purchases, too, when those transactions are processed abroad.
Example: You might be hit with this fee when you use a Bank of America credit card to buy airline tickets through the domestic office of a foreign airline.
4. What credit score is required for the card I’m applying for? A phone rep should be able to provide a minimum score or a range for the card you’re considering. If your score is too low to qualify, finding this out before applying saves you time and prevents an unnecessary credit application from appearing on your credit report. If your score is roughly 50 points or more above the minimum, this card likely is intended for those with worse credit than you. Ask the phone rep if the issuer has a more attractive card for someone with your score.
5. Which credit-reporting agency’s credit score will you check? Your credit score likely differs slightly from one reporting agency to the next. Small score variations don’t matter much if your scores are all above 750 (you almost certainly will be approved)… or below 600 (you almost certainly will be rejected in today’s tight credit environment). If your score falls between 600 and 750, however, apply for cards issued by lenders that check your credit score with the credit agency that gives you the highest score. A difference of just 10 points could be the difference between approval and rejection… or between receiving the issuer’s best terms and getting hit with higher interest rates.
TransUnion and Equifax reports and scores can be purchased online for $15.95 apiece from myFICO (800-319-4433, www.myfico.com). An Experian score and report can be purchased online from Experian for $15 (888-397-3742, www.experian.com), although the version of the Experian score sold to consumers is somewhat different from the version used by card issuers.