As the economy recovers>, consumers with sound credit are starting to get more new credit card offers in the mail. Banks mailed out more than a billion in the first half of 2010, up 55% from the same period a year ago, according to Synovate, a company that tracks the industry s direct mail practices.
These mailings are different than the ones that flooded mailboxes before the credit-card reform legislation that was passed last year. That legislation tightened restrictions on penalties and fees and mandated clearer disclosures about the key terms of card agreements.
Yet, today s offers are not entirely favorable to consumers either. Card companies are still within their rights to trumpet rewards while obscuring the significant strings attached and to sell cards with steep fees or high penalty interest rates.
The credit card industry uses marketing techniques to lure customers just like any other industry does, says Beverly Blair Harzog, a spokeswoman for CardRatings.com. I don t think the credit card issuers are inherently evil, Harzog says, but they want to position their product and they want you to bite on it.
Just as before, offers that come in the mail include words like reserved or platinum to create an aura of exclusivity, yet even consumers who are told they ve been pre-selected have been selected only to get a mass mailing, not necessarily to be approved for a new card, Harzog says. Some card offers stress that their product helps build a credit history, comes with fraud protection or allows future credit line increases. Really, all credit cards do this, Harzog says.
No matter how good an offer sounds, consumers should read the fine print carefully before applying for a new card, Harzog says. It may be a good deal, but just take your time and see if it s the right deal for you, she says.
Although the Credit Card Accountability, Responsibility, and Disclosure Act of 2009 made new offers somewhat easier to evaluate, some credit card traps still persist. Here are three that consumers should avoid:
Phrases like up to or as low as should be red flags for consumers, says Odysseas Papadimitriou, the chief executive of CardHub.com. Vague language like that used to be the status quo in the industry, but now more offers clearly state a cash-back amount or annual percentage rate without such ambiguity, Papadimitriou says.
Watch out for: The USAA American Express Card and the USAA World MasterCard, both of which advertise APRs as low as 8.9 percent. Check the fine print that interest rate could be anywhere from 8.9% to 23.9%. A spokeswoman for USAA says that most customers get low rates, and that the average retail APR for its cardholders is 9.1%.
Rewards With Strings Attached
Competition for new customers is heating up, so banks can t afford to back away from generous-sounding rewards offers, says Tim Chen, the CEO of NerdWallet.com. They won t change the offer on the outside of the envelope, but they ll find more subtle ways to reduce your reward payout, Chen says. Consumers should keep track of when reward points expire, for example, as some banks are shortening expiration periods, he says.
Watch out for: The Discover More Card and the Chase Freedom Card both prominently advertise their 5% cash back rewards, but there are restrictions. Cardholders earn the 5% only on certain types of spending, the bonus categories change every three months, and cardholders must remember to sign up to receive the bonus. A spokeswoman for Chase says the 5% categories are based on what consumers have said they want, the rotating categories are clearly communicated to cardholders, and sign-up is easy and can be retroactively applied to the whole bonus period. A spokesman for Discover also says their bonus categories are based on customers preferences and clearly communicated to card holders.
Balance Transfer Fees
Consumers planning to transfer a balance to a new card should be particularly wary of the fine print. Unless a 0% introductory rate offer specifically says that 0% applies to balance transfers, it probably doesn t, Harzog says. Even if the 0% is applied to balance transfers, a balance transfer fee could completely undercut the benefit of the lower interest rate. These fees are rising, with some cards now charging 4 or 5% of the balance, so you really have to do the math to decide if the transfer fee is worthwhile, Chen says.
Watch out for: The Citibank Platinum Select card, which offers 0% on balance transfers for up to 18 months (note that up to ) but charges a fee of 5% of the balance being transferred. A spokesman for Citi says the card makes sense for customers currently carrying a balance at a high interest rate but that "actual savings would vary based on a number of factors."