If you have a good credit score, chances are you receive credit card offers on a regular basis. Many of these make good sense -- for example, if you carry a balance on one of your cards, then a 0% APR balance transfer with no annual fee can be a smart choice. However, there are some offers that should be avoided at all cost.
Here are three types of credit card offers you should generally turn down, along with what you should choose instead.
We've all seen these offers. Say you're in a furniture store, and the salesperson offers you "no-interest financing for 24 months." Sounds good, right?
Well, the problem is what happens after those 24 months are up. In general, the minimum payments on these types of accounts will not pay off the balance before the introductory period is over. If there is even one dollar left on your account after the initial period runs out, you will be charged all of the interest that would have accrued from the date of the purchase.
You may be surprised how much this can be. In college, my roommate bought a $2,000 LCD TV with 18 months of interest-free financing. Enjoying his $50 minimum payments, he still owed $1,100 at the end of 18 months. Imagine his surprise when he opened the 19th billing statement, and nearly $500 was added to the balance. It turns out he didn't read the fine print, and his credit account had a 29.99% APR.
This is known as deferred-interest financing. Instead of this, you'd be better off applying for a traditional credit card with a 0% APR introductory period. This way, if you don't pay the entire balance by the end of the initial time period, the interest will start from that date -- not retroactively from the beginning. With good credit, you can find 0% APR offers for as long as 21 months -- for example, the Citi Simplicity card. For large purchases you need to finance, this is a much better option.
Credit cards designed to rebuild credit
If you have so-so credit, you might receive offers for credit cards that are "designed to rebuild your credit."
While these cards will help your credit if you maintain a solid payment history, they often come with enormous fees and high interest rates. For example, the First Premier Bank credit card has a $95 initial processing fee, $45 annual fee (high for a card with no rewards), and an additional $6.25 monthly fee after the first year. As if those charges weren't bad enough, the card has a 36% APR for purchases. And if you keep a great payment history and qualify for a limit increase, then you'll be charged a fee equal to 25% of the limit increase.
If this sounds ridiculously expensive, that's because it is. People who want to rebuild or establish credit have a far better option: secured credit cards. These work just like regular credit cards, except you're required to put a deposit in an account with the issuing bank in order to receive a card. Unlike "bad credit" cards, secured cards generally have competitive interest rates and fees, and the deposit is refunded to you when you close the account. My personal favorite is the Capital One secured card (I used this card to establish credit while in college), but there are many other great secured card products, so shop around.
Store coupons for opening a new credit account
Finally, beware the enticing coupon offers from retail stores. For example, a clothing store may offer you 25% off your entire purchase on the day you open a credit card account with them.
The reason this is generally a bad idea is that store credit cards tend to have incredibly high interest rates -- often around 30%. Sure, you just got 25% off your merchandise, but if you carry a balance for 10 months, you'll give that discount right back.
A better idea is to find a standard (non-store) credit card with a reasonable APR that offers a nice sign-up bonus of its own. One of many examples of this is the Capital One Quicksilver card, which offers a $100 cash back bonus after you spend $500 within the first three months -- effectively a 20% reward rate, and not just on the purchases you make on day one. Plus the card offers 1.5% cash back, no annual fee, and an interest rate as low as 13.24%.
Find offers that make sense to you
These are three examples of credit card offers that are rarely good for anyone, but even with good credit card offers, it's smart to be selective. Competition in the credit card industry has heated up in recent years, and consumers are the winners. So, even if an offer sounds great, take a few minutes to examine your other options -- you may be surprised what you can find.