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Interest rates are commonly misunderstood. It is difficult sometimes to take in all the detail that comes with them, and the many different kinds of interest rates. Still, understanding how interest rates work is an essential part of having credit cards. The penalties for misunderstanding interest rates, especially introductory or promotional rates, can be a mistake that ends up costing you way more than you thought it would. It is important to know everything about the interest rate on a credit card before you even get it. That way, there are no surprises.
Top 3 Pitfalls of Misunderstanding Promotional Interest Rates
1. Buying on credit cards and paying later… in more ways than one
This seems to happen a lot when you buy things on credit from specific stores. They promise you a tempting 0% interest rate for a certain period of time, during which you do not even have to make any payments if don’t want to. But the thing about interest rates is that whether you are paying interest or not, it still builds up, slowly increasing during that time and adding up to be more than you bargained for. For instance, you could buy a couch from a furniture store because it promised a low interest rate for the first six months, in which you don’t pay a dime, and then find out six months later that the interest rate has been climbing and is suddenly ten times more than you started out paying.
2. Balance transfer offers
Along with low interest offers that you often find in stores, balance-transfer offers present great promotional interest rates. But if you find out more about it, you may come to see that these rates may only be in effect when transferring a balance or when a new purchase is made with your card. Sometimes it only applies to one of those cases, leaving you stranded with a high rate when you use one or the other. For example, if you were to transfer your balance to one credit card that seemed to have a low interest rate, but proved only to apply that low rate to new purchases, you come out paying way more than you thought you would starting out.
3. Having low promotional rates sky rocketed into high regular interest rates
Find out exactly when your seemingly perfect interest rate expires. You could get a great interest rate on a credit card at first, but because you did not read the fine print, you come to find out that great rates only last for so long. Many credit card companies will start out with low interest rates, but can increase them after a certain period of time, making you pay ten times more than you started out paying.
Understanding how interest works and knowing just exactly what you’re getting into when you apply for a credit card that has low rates is very important. Paying on credit cards is much easier when you know how much you will be paying now and what you will pay once the promotional rates expire.
Everybody goes through rough patches in their financial life. Sometimes there are circumstances that lead to getting behind on your bills, missing a few payments to your debtors. All kinds of things can happen that make it impossible for you to keep up. It could be a layoff or a slowdown at work. Lots of people have unexpected medical bills or car repairs they weren’t planning on. Cash starts to get tight, you have to make tough choices about which bills to pay and which to ignore. The worst case scenario happens and you miss a couple mortgage payments. Why can’t the credit bureaus just let a few slider right? Wrong. Just one or two 30 day or 90 day lates on your report can wreck your score. I guess a credit score is kind of like trust. Have you heard the saying? It takes a lifetime to build trust and only five minutes to lose it. You’ll understand what that means when you don’t send the mortgage check a couple of months in a row.
Luckily, these little financial slip-ups are temporary for most people. Your job will pick back up or you’ll find a new one. Pretty soon you’re sending all the checks in on time and you’re sleeping a little better at night. Once you get your finances in order again you’ll want to get your credit rating back on track as quickly as possible. One solution is secured credit cards for people with bad credit.
Credit card companies and banks are wary of anyone that has missed payments in the past; they think you’ll miss payments again. They don’t want to lend money that’s not going to be repaid. In other words, your good intentions aren’t enough for these guys. Go figure.
Rebuild with Secured Credit Cards
So here’s what you do – remove their risk. They’ll give you a credit card as long as you put something at stake – your cash. Show them you can handle a little piece of plastic with a logo on it, and if you consistently use the card and make payments on time you crawl out of the hole you got yourself in. That’s the best way to use secured credit cards to rebuild very bad credit.
It’s probably not a bad idea to open a few of these cards, and use them for your every day purchases – gas, groceries, clothes – the credit companies will like the fact that you’re handling the credit well.
Many people are looking for low interest secured credit cards to get themselves back on track. I understand why any person would want low interest rates, but at the same time I think it is kind of funny that you are entertaining paying interest rates on a credit card and missing payments after going through so much trouble and struggle with a credit card to begin with. It is almost saying I know that I am going to get punched in the face again, but then asking “Please, just not in the nose.”
My feeling is that I would look to make sure that you have a couple other requirements then just finding low interest rates. One of the best things that you can do is take the time to look at the issuing bank and how credible they are. Do they have a good history with credit bureaus?
You can contact credit bureaus and the Better Business Bureau to find out if they have an impressive history or not. Beware of low interest secured credit cards online, not all are legit just because they have a low interest rate. This will allow for you to find out if they report to the credit bureaus with your history with their cards and in turn will allow you to have a higher credit score if you take care of your payments on time.
Next I would be more concerned about application fees, processing fees, late fees, deposit requirements and any other type of fee they may make up. This is so important because this is really how a company can make a lot of money off of you even if you take care of your card payments. Some companies charge up to $200 or more just to get started and then more fees monthly or annually. This can take its toll on any person with bad credit.
With deposits you are going to be required to make an initial payment between 10% and 200% of the credit you will have available to use. For instance, say if the issuer decides you have to make a 100% deposit, then if you have a credit limit of $1,000 you are expected to make a $1,000 deposit. Some can be greater than that. It becomes kind of silly, but there will be a price you will have to pay in order to turn your credit around.
Usually I have seen rates between 10% and 20% on a usual secured credit card. You may see lower, but I suggest that the lower the interest rate is with your secured credit card then the longer you should read the terms and conditions. The rates on low interest secured credit cards can leap drastically after six months or one year. Some will have an accruing interest rate that you don’t have to pay off until six months. These are all techniques that are done to allow for you to have time, but also can cause you to procrastinate easily and find yourself in a terrible position financially after several months.
I suggest that you are careful about your choices. You are better off getting a card from a well known bank with higher interest rates then low interest secured credit cards online. Some don’t have credibility and honestly aren’t looking out for your best interest. No pun intended.
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One of the best decisions you can make if you are a constant flier of the friendly skies is to get a credit card with an airline company. Many students face the issue of having to travel states away to go to college and back home. You want to make sure that you can travel safely home for holidays and special events. To be honest you probably don’t have the money to spend on flights. If you do then you are going to try to save as much as possible instead of spending hundreds or thousands of dollars to make it home and back.
It is smart to get a credit card from a company that you fly with often because this will help you to put your money to use. You have probably heard of frequent flier miles. Many airlines and companies in general do this to help alleviate the pain of spending. It is amazing how much easier it is for you to go for the more expensive purchase because of these types of offers. Now you might find yourself spending more just because you have a credit card to “save money for more miles” but be careful that you aren’t spending recklessly. This might help toward free miles, but in turn you end up going broke…not good. Just make it your primary credit card and use it when you have to. It will make the swipe less painful.
United Airlines will usually offer you a free mile in the air for every dollar that you spend. Depending on what type of card you get, you could potentially have a limit on the amount of miles you can get unless you get the Platinum card for their “preferred customers”. This is a higher annual fee, which all of their cards have, but this will allow for more ways to build up miles. For some of your spending, including for any United related items or housing related, you will actually get 2 miles for every dollar spent.
In the end it really comes down to how often you plan on spending on these cards. If you are only looking for a trip or two a year then maybe you should go with a more conservative card, but if you plan on spending a lot on credit cards for schooling, dates, or whatever floats your boat, then you will probably want to go with the platinum card. This all won’t matter if your credit is bad or you don’t have any credit history, so you might see if your parents can get one to help you come home.
Instant! This is a beautiful word that so many American’s love to hear. I know I love to hear it and I am sure that you do too. We like instant food, instant love, instant movies, instant money, and instant approval. This is really a loaded term as far as credit cards go. Many cards will give you instant approval as a method of showing their willingness to work quickly and help you in turn use that card quickly.
They know that many people get a credit card on impulse to buy products and not necessarily to improve your credit score. They want you to apply for credit cards with the notion that this isn’t going to take long and you are not going to have to go through a lot of hurdles to get there. Understand that there are still some things you will have to deal with.
One of the best things that you can do is don’t look for instant approval. Take your time to understand your APR, annual fees if you have any, grace periods, and any other noticeable items in the Terms and Conditions. There can be changes in the terms where the APR is 0% for a certain period, but that could increase in a heartbeat, so you want to know when that is going to happen. It might be more important for you to find out how easy it is to get a line of credit and not how fast you can get a line of credit, because that may be where your real problems are.
Easy Approval Student Credit Cards
The real question is how easy is it for you to get a credit card. Now if you don’t have a credit history, that is fine because companies know that you have to start somewhere and they would love to get your business initially so that you come back to them down the road as your income increases and especially for loans and business accounts. So they want to appeal to you to start off with. You can find cards that don’t have annual fees and that is good. Most rates are going to be 15% to 20% and that is pretty standard.
I suggest that you are safe with these cards because if you miss a payment then you can be murdered. Some interest rates can double up near 30%. This can be scary for any student just trying to make it by and I am sure that you don’t want your parents on your back about another issue, along with a creditor and a credit bureau which isn’t as forgiving.
Realize that you are going to have to give your social security number and they are going to do a credit check. This is in accordance with the Patriot Act and also they are going to do it obviously to know what your past is like with credit. This could help with getting a better rate if you have established a credit limit, but realize that it is going to take a several months to a year of good credit habits to impress a credit bureau.
It is difficult at times to find out what type of credit card is going to be good for you. If you have had problems with credit in the past then you are obviously trying to find the best secured credit cards or the best partially secured credit cards that will allow for you to build your credit back up, but at the same time they save you from the headache of having to deal with so many fees, high interest rates, and large requirements for deposits.
Many people ask are secured credit cards bad for your score? I don’t know the logic behind it because they are intended to do the opposite, but here are two possible ideas:
1. Most of the people that have bad credit scores are only able to get secured credit cards with high interest rates or a trade off of high fees. Then there must be an association between the two.
Well this is silly because really a secured credit card is like a bicycle with training wheels that will allow for credit holders to build a great deal of trust with credit bureaus. It is like grown up timeout. I think that most people get scared because these cards represent failure of some kind, but bad things do happen to good people. There is a better chance to repair your credit with the best secured credit cards and the best partially secured credit cards.
2. There are so many scams out there in the world today. I am afraid that of a bad credit card company that requires me to call a “900” number and then charges me an arm and a leg for even having the card.
There is some truth to this. There are certain card issuers out there that don’t report to credit bureaus and this will create no credit and keep you static. This isn’t what you want because your application fees, deposits, or possibly high interest rates are not worth it because you are not able to redeem yourself with the watching eye of the credit bureau big brothers. Make sure that your company is reporting to the credit bureaus. You can contact credit bureaus personally to find this out or just the Better Business Bureau to make sure that they are on the up and up.
Now understand that you will probably have to make some level of a deposit (around 100% of the credit you are looking to have available) and be ready for application fees or a trade off of a high APR. You probably want to try to avoid application and processing fees, which are cute ways to make more money off of the little guy, and go for a large respected bank like Bank One or Bank of America and get a small annual fee with decent interest rates. Honestly the best secured credit cards are the ones that you pay off on a regular basis and avoid maxing out.
One of the best things that any student can do is to go out there and get a credit card. I think that many students fail to establish credit early and then by the time they are adults they have been spending only with a debit card and not able to buy a house or a car. I think that it is in your best interest to get a card going as soon as possible. If you are having issues then get a parent or an older sibling to cosign for you. This can be a great way to start off on a good note. If they are careful with their credit then they will teach you how to use the card correctly. Respect what they have done for you and use the card wisely.
Also you should open a checking and a savings account. This can help any credit company take a look at what you are doing with these accounts and how you spend money. This could be a great source to get a credit card from when the time comes. Also a lot of teens are offered store credit cards from clothing apparel chains like American Eagle, Buckle, Abercrombie, etc. These are also good ways to start establishing good credit. Now this could be scary for some of you because you spend money at places like these like a crazy person (this is specifically for the women). So I suggest you don’t spend anything on that card, which you can’t go without. Make sure that you have those funds in a checking account. Don’t start playing the game of making payments with a credit card and hoping money will fall from the sky.
Apply For Student Credit Cards Online
One of the easiest things you can do is get a credit card online at a valid banker. Be careful that some third parties are scams, but many are clean vendors for these major companies that allow for these big companies to spread their wealth on the Internet. Make sure that they are truly associated with a major credit company and then you could potentially find cheaper rates this way.
If you do apply for a credit card online, make sure to have an adult there the first time. This can be good because they will be able to help you know what to look for with a card. You can find cards without having to worry about annual fees, low APRs (not just initially) and unsecured cards that don’t require an initial deposit equaling your credit limit. Be smart with your choices and you will build a strong initial relationship with credit bureaus.
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This is a sticky process. Many have gone through a consolidation process of refinancing your student loans to try to decrease your interest on the student loans. So now you are looking for ways to improve your credit and you want to find out how to get a credit card because you have heard that a credit card is going to help you out of your financial bind. Well this can be true. There are some options that you can look at. First make sure that you are in the clear from your refinancing process so that you can apply for credit cards. Whenever you go through a refinancing, you probably can’t get a new line of credit or use the current ones you have too extensively.
One of the first steps you should take is to find out where your credit is at and what type of cards companies can offer you based on your credit, income, and any other debts you may have. It is important that no matter what happens with your credit card situation, you are able to be consistent on paying off your student loans. This is fundamental for any person looking to keep their credit. One late payment can put you in the dog house, while six solid payments in a row can begin to help your credit improve.
The Appropriate Credit Cards While Paying Off Student Loans
So when you have found out where your credit score is at and you have finished the consolidation process for your student loans then you can start looking at cards. Depending on where your credit is, you might have to start off with a secured credit card before moving forward with an unsecured credit card. This is fine because whatever type of credit card you have, you need to pay your bills on time and spend wisely with your new card.
If you are struggling to find the right card and you just want to improve your credit then you should start by opening a checking and savings account if you don’t have one and make sure to pay your normal bills on time like rent, utilities, car payments, etc. If you can do this, then this will be a good first sign for any creditor. Next you need to look at store cards as options. These are just some examples other than using the student loan itself. Don’t put yourself in a difficult situation where you are going to have to worry about consolidating your credit cards a year after doing the same with your student loans.
Financial Tips | Mack Bartlett, 17 Aug 07 | 
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