Do Not Apply: 5 Red Flags in a Credit Card

It's a good idea to have at least one credit card. Credit cards are a safer way to pay for purchases than cash. If you don't overspend with your card, and you always pay the bill on time, then it can also help build your credit score. A higher credit score has quite a few benefits, including lower interest rates on mortgages and other loans.

When you're new to credit, or you've had credit score problems in the past, it's harder to find a card. And unfortunately, many of the cards for people in this situation aren't the best. There are great starter credit cards, but there are also some that seem more designed to take advantage of cardholders.

That's why it's important to know what red flags to look out for in a credit card. If you notice any of these, stay far away.

1. An annual fee with nothing to show for it

An annual fee on a credit card isn't necessarily a bad thing. Some of the best credit cards charge annual fees, but they also have benefits that make their fees worth it.

But there are also cards with annual fees and few, if any, benefits. This is common among credit cards for people with bad credit. There are card issuers that will approve almost anyone for a card, but then charge a massive annual fee on that card. I've seen fees of over $150 on cards that offered nothing of value.

When you're building credit, look for cards with no annual fee. If a card has an annual fee, see if it has anything that could balance out the fee, such as the chance to earn cash back.

2. A bad reputation for the card issuer

Here's an easy way to avoid many of the worst credit cards: Look up the card issuer online before you apply. See if it has been a part of any J.D. Power rankings, and check what people are saying about it on communities like Reddit and MyFICO.

If a card issuer has solid customer satisfaction scores, and people online like its cards, then it's probably a safe choice. If every Reddit post about a card issuer says something like "I've made a mistake," "Avoid at all costs," and "How can I cancel?", then you know to steer clear.

3. Repeated mail offers

Lots of credit card companies send out mail offers, so this alone doesn't guarantee a card is one to avoid. But mail offers are also a common tactic among card issuers that prey on people with bad credit.

Make sure to research any card you learn about in a mail offer before you apply. If you have a low credit score, and you keep getting offers about the same card, be especially cautious about it.

4. A sky-high interest rate

Credit cards as a whole charge high interest rates, which is why it's good to always pay in full and avoid interest charges. Earlier this year, credit card interest rates hit a record high of 22%. The only cards that are good for paying off balances over time are 0% intro APR credit cards. They offer a 0% APR for an intro period, which can be 12 months or longer.

While you won't find many cards with low interest rates, you should still look at a card's APR before you apply. Mediocre credit cards often charge high interest rates, even by credit card standards. If a card has an APR of 30% to 35%, or higher, it's probably not worth getting.

5. No way to upgrade

Credit cards for building credit usually aren't feature-packed, and that's fine. The point is to raise your credit score, without paying unnecessary fees.

But good cards will include the option to upgrade in the future to a card with more benefits. This is especially important with secured credit cards, a popular option for building credit. These cards are easier to get, because they require a refundable security deposit to open.

Ideally, you'll eventually be able to upgrade to an unsecured card. That way, you can get your deposit refunded without needing to close your account.

There are plenty of quality credit cards available, but there are also some that aren't recommended. Now that you know the red flags to watch out for, you can make sure you pick a winner.