There are, amazingly, more than 600 million credit cards out there issued by the main credit card networks. When you add in several hundred million store cards and gas station cards, the grand total tops a billion. It's not a matter of having more than a billion of a certain kind of card, either: There are more than a thousand different kinds of credit cards.
It's easy to get confused when you're in the market for a new credit card and get offers from many card companies, often unsolicited. Don't just sign up for the first credit card that looks OK, because you could get stuck with a bad credit card and end up with a high interest rate, penalty fees, escalating debt, few rewards -- and a rotten credit score. Here are some signs of bad credit cards to watch out for.
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Sign No. 1: The dreaded penalty APR
One of the most undesirable and dangerous features of a bad credit card is a "penalty" APR. This is when card companies hike your interest rate, often to between 25% and 30%, if you're late paying a bill. Look in a card's terms and fine print to see whether there's a penalty APR, and if it's there, avoid that card; plenty of cards don't have this feature. If you're quite sure you will never be carrying revolving debt, or will do so only on an extremely rare and limited basis, you can accept a card with this feature, but be wary.
Sign No. 2: Fees, fees, fees
Next up is fees. Credit card issuers rake in a lot of money from fees. According to industry advisory organization R.K. Hammer, in 2016, income from interest and credit card fees topped $163 billion. Some $12 billion came from penalty fees -- such as the ones levied when you're late paying a bill. Another $12.5 billion was generated by annual fees. And a hefty $26.6 billion came from cash-advance fees. Try to avoid any triggering any fees you can when you're already a cardholder, and favor cards with minimal fees when shopping for a card and comparing offers.
You can easily avoid annual fees (which are often $75 or $100 and can sometimes exceed $500) by simply choosing cards with no annual fee -- most cards actually don't charge one. You needn't walk away, necessarily, if your card does have an annual fee, or if a card that would offer you great rewards has one. You might be able to get the annual fee lowered or waived, just by asking. According to a report by CreditCards.com, most cardholders who asked their card issuers were successful in lowering or eliminating annual fees. Some 31% negotiated the fee to a lower amount, and 51% got it waived entirely. If you're a good customer, it can't hurt to ask.
If you're planning to transfer a debt balance or think that you might need to one day, know that some cards will charge you in the range of 3% to 5% of the amount you transfer from another card. On a $10,000 transfer, that's $300 to $500. That might still be worth it in some cases, but you'll probably want a card that charges no such fee, at least in the initial period when you make your transfer.
Be as comprehensive as you can when comparing offers from various card companies and banks and examining the fees they charge. It's great if there's no annual fee, but if the card will charge you every time you pay by phone and you prefer to pay by phone, or if it charges a lot per ATM withdrawal and you use ATMs frequently, that can add up. If you travel a lot, make sure the card doesn't charge foreign transaction fees, which are often around 3%. (Charging a fancy $300 sweater in Oslo? That could cost you an extra $9.)
Sign No. 3: Steep interest rates
Interest rates should be another decision factor -- especially if you are ever likely to carry revolving debt. Favor cards in a relatively low range of interest rates; you can look up average credit card rates online. In late September of 2017, the average credit card APR, per CreditCards.com, was 16.15%. If you're in the market for a card with a 0% initial rate, look into what the rates are likely to be once that initial rate expires.
Look for signs of good cards, and score rewards and more
While certain characteristics can help you rule out some card companies' offers as bad, you should also look for characteristics that are good. For example, many cards offer cash back -- or points or rewards -- that can be earned as you spend with your card. You can find cards that pay you 2% cash back overall on your purchases, and ones that offer up to 5% or 6% back on certain categories, such as supermarket spending. Some cards have preset cash-back rates for certain categories, while others rotate categories that earn extra-large rewards every three months -- sometimes even letting you choose the categories. If you frequent certain retailers or airlines or other companies, you might do well with one of their cards, as benefits will be best for their customers.
A hefty sign-up bonus can be another draw -- ideally, as long as that card's other features are good. Many cards, especially travel-related ones, offer hefty sign-up bonuses that can be worth up to $500 or more -- if you spend a certain amount in the first few months. Go ahead and see what great offers you can find, but don't base any decision just on the bonus. And make sure you'll be able to qualify for the bonus with your regular spending habits.
Finally, a good card might also offer access to your FICO credit score. It can be helpful to be able to check your credit score now and then, especially if you're working on paying off debt and increasing your score. Many cards these days let you see your score, and some even print your credit score on your monthly statement.
Your credit card may just be bad for you
Even among relatively good cards, some can be bad for you. For example, you might have a card that offers great travel benefits, but you don't travel much. If you're paying a $95 annual fee for that, you're not winning. Make sure your cards fit your spending habits.
One of your cards can also become suboptimal for you if your life changes a bit. For example, if you're suddenly carrying a lot of debt, a high interest rate that never mattered before can now matter.
Beef up your credit score for the best cards
Finally, know that if your credit score has improved, you might now qualify for some of the best credit cards.
What's a high credit score? Well, basic FICO scores, which are used by about 90% of top lenders, range from 300 to 850. Here's how the folks at FICO rate the scores:
If yours isn't high, you might want to spend some time and effort to increase your credit score. Here are the components of a FICO credit score -- it can help to know them if you need to beef up your score:
Don't let yourself be overwhelmed by the myriad credit cards out there. Know what to look for, and you'll be able to avoid stinkers and zero in on cards that will serve you well.
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