People love to use credit cards, but when looking for a new credit card, you want to be sure to get the right services and features. You should understand the terms and fees for your credit card so there are no surprises when you open the monthly bill.
What specific questions should you ask before you sign for a new credit card?
The biggest concerns among credit card customers are billing disputes, which make up 17 percent of credit card complaints. Many of these complaints center around recurring charges that should be cancelled, inaccurate billing, and fraudulent charges. Other common complaints include unwarranted late fees, changing interest rates so suddenly that bills increase, and multiple balances for purchases and cash transactions.
The only way to find the right credit card for your needs is to ask the right questions of your bank, credit union, or credit card company in advance. Here are eight questions to ask before you apply for your next (or first!) credit card:
1. How is a credit card different from a debit card?
Banks and credit unions issue credit cards, debit cards, and debit cards that can be used as credit cards. The differences are important. A debit card immediately takes the money for a transaction from your bank account. A credit card adds charges to your monthly statement, so you can pay at a later date determined by your lender. Remember, credit cards will accumulate interest charges on unpaid balances. When paying in stores, the question of “debit or credit” may arise. If you choose debit, the cash will be immediately withdrawn from your account. If you choose credit, the transaction is charged when the merchant settles the purchase with the credit card company.
2. What if I don’t have a credit history?
If you are just starting out, you may have little or no credit history. There are cards designed for people with no credit. If you are having trouble qualifying for a credit card, you can look for a cosigner to help you qualify or apply for a secured credit card to help you build your credit history.
3. What is a “pre-approved” or “pre-qualified” credit card?
Consumers frequently receive offers in the mail saying they are “pre-approved” for a credit card, which means the credit card issuer has made a cursory check of your credit and determined that you are likely to be a good candidate for a credit card. It doesn’t mean you are actually approved to receive a credit card. You still have to apply. However, there is an excellent chance you will be approved.
4. What about credit card fees?
In addition to earning money on interest, credit card companies often charge fees, such as an annual membership fee, balance transfer fee, cash advance fees, and foreign transaction fees. Most of these fees are small, but they can add up over time. You should be aware of any fees so you are not surprised when the monthly statement arrives.
5. What about late fee forgiveness?
Like any bill, credit cards should be paid on time. Failure to make timely payments may lead to late fees, and it may have an adverse effect on your credit. Life happens, and you may miss a payment due to illness, miscalculating your cash flow, or a host of other reasons. Some companies will waive a late fee if you have a good payment history with the company. Check late fee policies and see what tools are available to help you avoid late fees.
6. What about interest rates?
Credit cards have either fixed interest rates or variable rates. If you get a fixed interest rate, that will be the set rate to calculate finance charges added to your outstanding balance. Variable rates are tied to the prime rate and can change every month. Depending on the state of the economy and your personal finances, you could go with either type of interest rate, but be sure you understand the terms.
7. What about fraud protection policies?
Although lenders continue to monitor and increase security, credit card fraud is still a problem. If you are a victim of fraud, make sure your credit card company does everything they can to not only correct the issue at hand, but also increase security measures to make sure your account isn’t targeted in the future. Many companies will credit fraudulent transactions without questions, but there are limits and conditions. In addition, credit card companies are monitoring transactions, looking for unusual patterns, and they offer mechanisms to help secure your account.
8. How do I apply?
Once you find the credit card you want, applying is simple. You can apply for most credit cards online by answering a few simple questions.
A credit card can be an invaluable tool that can help you manage your expenses and build credit. However, you want to make sure you find the right credit card to meet your needs. Be sure to research the terms before you apply for a credit card. If you have questions or concerns, your iQ Credit Union financial advisor can always offer guidance.