After Your Divorce, Get Good Deals When You Get New Cards in Your Name
One of your post-divorce responsibilities has probably been to reestablish your financial stability, open new bank accounts and obtain new credit cards exclusively in your name. As you apply for new credit cards, it’s important to understand that they’re not all alike. Before you start responding to those extremely attractive offers you receive in the mail or see advertised, be sure you fully understand the fees and interest rates associated with each offer, or you could wind up paying much more than necessary for credit.
Speaking of utilizing credit cards, the total amount of revolving consumer debt in America, according to the Federal Reserve, is $904 billion (as of June 2007). This is up from $879 billion in late 2006. While many adults have credit cards, MSN Money reports that 8.3 percent of households owe $9,000 or more.
When it comes to applying for credit cards, always shop around for the best deals. First, determine how you’ll be using the card. Assuming you have an average or above-average credit score, will you be maintaining a significant month-to-month balance on the card? If so, choosing a card with a low interest rate (APR) and low fees is most important for saving money.
If you’re the type of consumer who always pays your credit cards bills in full at the end of each monthly billing cycle, you can better utilize cards with higher interest rates, but that come with extra perks, like the ability to earn frequent flier miles or cash back on qualifying purchases. In 2006, approximately 40 percent of all credit card users paid their balance in full each month, according to the Federal Reserve Bank of Philadelphia.
Before completing any credit card application, carefully read the Cardholder’s Agreement” and/or the Terms and Conditions” statement that relates to the specific card and offer you’re considering. If you’re applying for a credit card online, you may have to search a bit for this document on the card issuer’s website. If you’re completing a printed application, the information relating to the fees and interest rates will be in the very fine print, not the bold headlines.
To properly analyze each credit card offer, determine the following information before completing an application:
1. Whether there’s an annual fee and how much it is.
Some credit cards waive the annual fee for the first year, or have no annual fee at all. Look for cards with no annual fee. Most credit cards that come with perks, such as the ability to earn frequent flier miles or a discount at your favorite retailer, have an annual fee associated with them.
2. Is there an application or processing fee associated with completing the credit card application?
This is common for credit card offers that target people with below-average or poor credit. As a rule, beware of these offers. They’re seldom a good deal and usually come with high interest rates and lots of hidden fees.
3. What is the APR (annual percentage rate)?
This is the interest rate you’ll be paying on your outstanding balance for purchases. The lower the APR, the better. Some credit card offers have an Introductory APR, which only lasts for the first three, six or 12 months. If this is the case, understand what the APR will revert to after this initial period.
4. What is the default APR?
If you’re late on just one monthly payment, skip a payment for whatever reason, pay your monthly bill with a check that ultimately bounces, or you don’t adhere to the terms of the card holder agreement, your APR will automatically jump to the default rate, which is often well over 32.4 percent.
5. What is the balance transfer rate and cash advance rate?
This is often a different interest rate than the card’s standard APR.
6. What fees and charges are associated with the card?
Most cards have late-fees, over-limit fees, balance transfer fees, online payment fees, telephone payment fees, and other hidden fees associated with them. These fees can add up quickly if you choose the wrong credit card or don’t adhere to the terms of the cardholder’s agreement.
Based on the fees and interest rate you’ll be paying, does the specific credit card you’re considering make financial sense? For example, if you maintain a high month-to-month balance on your credit card, plus there’s a high annual fee, using a credit card may cost you a lot more in interest charges and fees than the value of the perk you’re receiving. Instead of earning frequent flier miles for purchases made with the card, it might make more financial sense to obtain a credit card with a very low APR and no annual fee, and then use the money you’d save in interest charges and fees to purchase your own airline tickets from a discount online travel site, for example.To help you seek out the best credit card offers, many independent comparison websites are available. Choose an unbiased site that does not exclusively compare credit card offers from sponsors or advertisers of the site.The following are a sampling of credit card offer comparison websites:Bankrate.comCreditcards.com
Remember, each time you complete a credit card application, the credit card issuer will access your credit report to make its approval (or rejection) decision. This will count as one inquiry on your credit report, which negatively impacts your credit score, regardless of whether or not the application is accepted.
If you complete multiple applications within a three to six month period, your credit score will drop and your chances of having each application approved goes down significantly. If you want or need multiple credit cards, fill out the applications over a several month period, only after you determine your credit score is high enough so your applications will get approved. A FICO credit score above 620 to 650 (depending on the credit card issuer) is important for getting approved for the best credit card deals.
Also, don’t assume that two credit card offers from the same bank or financial institution will have the same cardholder’s agreement, fees and interest rates associated with them. Every card offer is different, so analyze each carefully.
As a newly single person, it’s important to establish or re-establish your credit and build up a positive credit history. One step for accomplishing this is to fully understanding and adhere to the terms of each credit card you obtain. Always make your payments on time and use each card responsibly.
