If, deep in your heart, you don't really believe in the value of reading the fine print in offers you receive, read on. (Don't worry. The print is relatively large.) I recently ran across a rather shocking story about a credit card, authored by Curtis Arnold at cardratings.com. Permit me to recap.
It seems that a colleague of the author received a credit card offer for a Best Buy (NYSE: BBY ) MasterCard in the mail. It seemed enticing, sporting an annual percentage rate (APR) of 0% for the full first year, along with 4% earnings on purchases at Best Buy, 1% on all other purchases, and other rewards.
The fine print
So what was so bad about it? Well, it depends to a large extent on how you'd use the card. If you like to take out cash advances on your card, you'd be paying a 5% fee for them with this card. Take out $500, fork over $25. You'd also be charged 26% on your cash advances. Take out $1,000, pay a whopping $260 over a year for that privilege. Ouch! (Arnold quips that, "Getting a cash advance on a credit card is almost always a bad idea, but on this Best Buy card, it'd be incredibly costly and anything but a best buy.")
No problem, you say? You don't use cash advances? Well, let's hope you never make late payments, either. Because a late payment will get you slapped with a fee of between $29 and $35. Worse still, a late payment can also get your interest rate hiked immediately to a steep default rate of 30% -- for your entire account balance! In other words, if you owe $5,000 on your card and are enjoying a 0% interest rate for the time being, it can suddenly rise to 30% due to one late payment, meaning you're on the hook for a heart-stopping $1,500 over a year (unless you pay down or pay off that debt pronto).
It's not unusual
But wait -- there's more! I have to concede that the stipulations I listed above aren't that uncommon. Here's a new one I hadn't heard about, though: It seems that with this card, if you want an increase in your credit limit, you might be charged up to 50% of that increase (depending on your credit rating). In other words, if you need your credit limit increased by $1,000 (perhaps because you've spotted a large-screen TV you just can't live without), you might get whacked with a fee of up to $500! As my 5-year-old niece might say, "That's not fair!"
Arnold offered his thoughts on this matter:
The notion of a lender charging us for the privilege of making them more money has never sat well with me, even when we're talking about the typical $10 to $25 fee. 50% is different. Waaaaaaaaaaay different.
He went on to note that after some research, via calls to the company, it appears that this last fee isn't currently in effect, but it might be, one day. The bottom line is that you're probably best off avoiding a card like this. As Arnold concluded: "There are plenty of great credit card offers out there that do not have such worrisome terms."
Security matters
And by the way, when you assess various credit cards, pay attention to how well they protect you. I wrote about credit card security a little while ago, citing a survey of card issuers such as American Express (NYSE: AXP ) , Capital One (NYSE: COF ) , and Nordstrom (NYSE: JWN ) Bank. The top cards included Bank of America's Visa Platinum card, the American Express Blue card, the Discover Platinum Card, and First National Bank Omaha's Platinum Edition Visa Card.
Learn more
Learn much more about the surprisingly interesting credit card industry in our Credit Center, which also features tips on getting out of debt, along with guidance on how to manage your credit effectively. It's all free reading.
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