Credit cards are advertised with their benefits prominently displayed while fees, rates, and other catches are buried in the fine print. Some of the biggest credit card tricks aren’t found in the fine print at all. They’re really just clever marketing that can make an offer sound better than it really is.
Here’s the lowdown on the many credit card tricks card issuers play on consumers.
1. Interest calculations can be confusing
Confused by how credit card interest is charged? Maybe you haven’t looked so closely before, but it’s typically not assessed on your statement balance.
Instead, it’s often charged on your average daily balance during the billing cycle. To calculate interest, you’ll need to add up your balance each day of the billing cycle, and divide by the number of days.
You’re typically only free from interest charges calculated this way if you pay the entire balance, not just a portion of the bill, during the grace period.
For cash advances, there’s typically no grace period, so interest starts adding up from day one.
2. Pre-approved doesn’t mean automatically approved
Got mail that says you’re pre-approved for a new card? You might be disappointed to find you’re not eligible for the card after all.
As it turns out, their offers are more like targeted ads than an actual offer. You’ll still need to apply and meet all the usual terms for opening a new account, which includes a credit inquiry that can work against your credit score.
Needless to say, these offers often aren’t any better (and can actually be worse) than shopping for your own credit card offers.
3. Gold cards don’t mean a thing
There are many cards with fancy names, like “silver,” “gold,” and “platinum.” While a gold card might’ve meant something in the past, that’s not true anymore. It’s just about marketing, and credit card companies know consumers may think these cards are better to own.
Don’t fall for the hype with the name. Shop around based on offers, and don’t be afraid to select plain cards that still offer great benefits.
4. Rewards aren’t so rewarding
Cash back and other rewards sound lucrative, but once you do the math, they’re often less than stellar.
Many cards offer up to 5% cash back on purchases, but that’s often only for certain categories. Many cards offer just 1% back on your purchase. That’s a measly $10 reward for every $1,000 you spend on the card.
Worse: some cards have spending tiers. For these cards, you’ll have to cross an annual spending threshold before earning higher rewards rates.
5. International charges come at a price
Excited to see MasterCard and Visa cards accepted in foreign countries? Don’t be too thrilled. Many cards tack on a fee to use cards for foreign transactions. This fee is often 1%-3% of your purchase.
6. You can transfer a balance, but it’s not free
Transferring a balance to a 0% interest card might seem like your saving grace from high interest rates, but it’s usually not a free transaction.
You’ll likely pay a fee equal to 3% of the balance. Do the math, and it might be months before you break even compared to keeping your old card and paying interest.
7. Late payments cost more than just a fee
Missing a payment might seem like a small slip-up. But making this mistake can be costly beyond the late fee.
After paying your late payment fee of up to $35, get ready to potentially pay a penalty APR. These penalties can push the interest rate on your card to more than 30% APR.
If you’re late on a payment, your credit score will be dinged, too. The cost of just one late payment can be devastating, and you could be forced to pay higher interest rates on any loans you’re applying for.
8. Business cards aren’t subject to CARD act
The Credit CARD Act of 2009 capped many fees and added rules that helped protect consumers on personal credit cards. But there’s a catch: small business credit cards aren’t included.
If you have a business credit card, watch out for higher fees and charges compared to your personal card. If you miss payments or default on your debt, it’s your personal credit on the line.
9. Big sign-up bonuses come with a catch
Many credit cards offer big bonuses for opening an account. But those free miles or bonuses come at a cost.
Many airline credit cards require a minimum spend within a specified time period to earn the full reward, such as spending $3,000 within three months of opening the account.
Keep in mind that many of these cards have annual fees, too. While some waive the fee for the first year, others tack on a charge of $75 or more right away. Even if the fee is waived, you’ll need to cancel the card after the first year to avoid the costly annual fee.