How to Spot a Credit Card Rip-Off

CNNMoney. ^ | Thursday, July 31, 2008

[BenLurkin]

Issuers are taking heat for hidden charges, but there's already an easy way to tell if a new card offer is a deal or not. It's the "Schumer Box," a table in every application named for Sen. Charles Schumer, D-NY who sponsored the 1988 law that requires it.

An APR of 11% or Less on Purchases

The annual percentage rate (APR), or interest you pay on balances, must appear in big type. You aren't guaranteed this APR. It will depend on your credit history.

The box will also say whether there's an introductory rate and how long it'll last. Today's average APR is 11.32%; with a credit score of 720, you should get 10% or less.

Note: Most APRs are variable, meaning they change with the prime rate.

Low Rates on Other Loans

Look next for rates on cash advances and balance transfers if you'll use those features. The average APR on cash advances is 21.65%; expect a fee of 2% to 4% too (these charges usually appear in or under the box).

If you're transferring a balance, look for a card that has a 0% APR for at least a year. And ask to have any fee waived (43% of issuers will do this for new customers, reports education and advocacy group Consumer Action).

Forgiving Penalty Terms

In the same section of the Schumer Box, the issuer must also tell you what the penalty rate, or "default rate," will be if, for example, you pay late or go over your limit. (It can shoot up above 30%.)

[Crazieman]

Easy, its a Credit Card. Therefore ripoff.

[JasonC]

MSM trying to give another elected Dem a happy. Doesn't work though. People with good credit get insanely good deals and it has nothing whatever to do with politicians and their self important crap. I can borrow money from Citibank cheaper than it can borrow money from me.

[ThePythonicCow]

If you're transferring a balance, look for a card that has a 0% APR for at least a year. And ask to have any fee waived ...

That doesn't seem reasonable. There is no way that anyone can honestly loan me money for year for zero fee, zero interest.

Something got lost in the translation here.

[Lizavetta]

I get credit card solicitations weekly for "no annual fee, no interest for a year" offers.

Am I an anomaly? When the no-rate time period runs out, simply transfer to a new no-interest card.

[bornred]

Remember that if you make purchases on the same card, your payments will be credited toward the balance with the lowest interest rate. So the 0% balance will drop with each payment, but the 10+% balance will rise with every purchase.

You need to be very careful with these things.

[Dr. Sivana]

That doesn't seem reasonable. There is no way that anyone can honestly loan me money for year for zero fee, zero interest.

They are counting on you to either buy a lot of stuff with said card, earning them transaction fees, exceeding the one year term through changed circumstance or neglect, or being more likely to get other services from them that get the big money (mortgage, etc.). And of course, most people don't ask to have the transfer fe waived.

I read somewhere that credit card companies spend $300 for every customer they get. I believe cell phone companies also spend egregious amounts.

[nascent skeptic]

Fwiw, I think it may have something to do with banks repositioning their balance sheets with certain types of assets (in the form of credit lines to more reliable borrowers) that don’t necessarily need to produce income to have the desired effect on the balance sheet.

[steve86]

I’ve taken advantage of numerous 0%, no fee offers.

The bank is simply wagering that you’ll flub up with a late payment, at which time the rate will skyrocket to 29 or 38% and the loan will become hugely profitable for them.

Their strategy never worked with me.

[fzx12345]

Or you could just pay the balance in full every month and enjoy a 0% rate.

[ThePythonicCow]

You need to be very careful with these things.

Yeah, I know. I've played teaser rates for years on cards, to get low interest credit (back in the days when I had debt ;). I can read the fine print with the best of them. I have never seen zero interest, zero fees.

I have seen (still one on my desk now) zero interest, 3% fees, or 3% interest, zero fees, but not both zero.

I doubt such exists, or if it does exist, then they have found some other way to -ensure- that they get paid, not just hope you trip up and leak money to them.

[VOA]

bump

[ThePythonicCow]

I get credit card solicitations weekly for "no annual fee,

Aha - that was the key to my confusion. No annual fee. That is common, along with zero interest. Where they get the money, for sure, in those cases, is in charging you an initial fee, of perhaps 3% of the credit advance.

So when I said I had not seen "zero interest, zero fee" I mean t I had not seen "zero interest, zero initial advance percentage fee."

Thanks for qualifying annual in your mention of fees, above.

[Lizavetta]

Okay, you may be right.

I don't know what the credit advance fee is because I would never advance cash.....that's asking for a financial spanking.

Using a zero fee, zero interest card UNDER THOSE TERMS is a win-win deal, provided you pay attention to when all the zero stuff runs out.

[ThePythonicCow]

credit advance fee is because I would never advance cash

The cash advance fees are usually amongst the highest (worst), and should be avoided.

What's usually the best (lowest) are balance transfer fees. I have been able to get money for about a year, at a total cost of 3% of the balance for that year, by using balance transfers.

The tricky part is getting the money out of the credit card world into the checking account world; balance transfers just move money from one card to another. I am fortunate to have one card with USAA (great service) which lets me take credit advances without a fee. So I would balance transfer from one of the cards offering me a teaser rate for such transfers, to my USAA credit card, and then transfer the money from the USAA card (which then had a balance due -to- me) to my checking account, for no further fee. Alternatively, I could balance transfer from one card to another card on which I owed nothing, then have that second card send me a check for my "overpayment".

But, yes, stay away from cash advances, unless you are desparate, or enjoy lining the pockets of the credit card company with your finest greenery.

[bornred]

Here are some recent 0% no fee offers:

http://www.fatwallet.com/forums/finance/843508

There is a whole subculture of people who use these things to borrow lots of money at 0%, then park it in a CD for a year and pocket the interest.

[djf]

I recently got a Gold Mastercard.

I figure it’s good to have in case of emergency, so I don’t keep it in my wallet and have made no purchases with it yet.

But I’m starting to wonder - is there ever a fee even if you don’t use the thing?
Just curious.

[MarkL]

I recently got a Gold Mastercard.....

But I’m starting to wonder - is there ever a fee even if you don’t use the thing?

Let me see if I've got this straight... You applied for, and accepted a credit card, which is in effect a contractual financial instrument, and you don't know what the terms are?

Just curious.

Are you serious?

If you are serious, you need to have a long talk with a responsible adult, and then go back and read all the information you have from both the initial solicitation AND the once they sent you the card. You do still have those, don't you? That's just in case they decide to try changing the rules on you.

Mark