- Personal Finance
Chase Away Unsolicited Credit Card Offers
Two to three times per week I receive unsolicited credit card offers. They come from all the nationally advertised credit card companies, Capital One, Orchard Bank, Chase, etc. I typically shred the offers without looking at what the offers include but I occasionally open one up to see what the companies offer.
One recurring theme in the offers is now a zero-percent interest-rate for six months followed by some variable interest rate after the trial period ends. At face value the offers look promising but the variable interest rate will go up to a rate determine by the fed. Some companies will also manipulate the receipt of your payments to increase the interest rate according to the late payment clause (read the fine print). These interest rates can climb to around 30%. If individuals offered loans with these rates, the fed would be after the individual for loan-sharking.
Check to see what the initial credit limit will be on a new account. Sometimes a company will specify a credit limit but many offers will simply state a minimum credit limit in the fine print on the back page. Limits of $300 or less will most likely provide you with no buying power. These offers often include some mandatory membership in a savings or travel club that you probably will not use, especially if you are considering a card with such a low credit limit.
When you accept the card you will probably be nailed with some fee near the credit limit, say $270 for a $300 card. You will receive monthly statements and be required to pay for that fee before you even use the card. If you use the $20 or $30 in credit that remains, then that $20 or $30 may end up costing you over $100 in the first year.
These cards are targeted toward individuals who are trying to establish or rebuild their credit and the companies market these cards like they are doing the offer recipients favors. They are not; they are out to earn plenty on late payment fees and interest charges. Even with the low initial interest rate the company stands to make plenty of money because the chances of card-holders who accept these offers paying off the initial fees and paying off their balances monthly is quite low.
Another tactic that the companies use is to pre-load the card with fees so if an offer recipient uses the card at all before receiving the first statement then the card immediately goes over the credit limit. These companies will permit a card-holder to go over the limit because they can then charge an over the limit fee. Once the company charges a fee like this they can immediately raise the interest-rate on the card because they can show that the card-holder violated the terms of the credit agreement.
Although new legislation limits some of the unwarranted fees that credit card companies can now charge, the best strategy is to watch these offers very closely.
A Better Strategy
A better strategy to rebuild or establish credit may be to stay away from the credit card issuers altogether, at least until a realistic credit limit and non-variable interest rate may be obtained. Unfortunately, in the new financial environment a non-variable interest rate credit card may be extremely difficult to locate and obtain. The problem with this strategy is that certain types of transactions are nearly impossible without a credit card, such as renting a car.
The best strategy is not to use credit cards unless you have the ability to pay off the entire balance as soon as the charges are incurred. However, for many consumers this is not possible and they use credit cards to survive a payday-to-payday financial situation.
One other aspect of using credit cards that many consumers are unaware of is that the retailers who accept a credit card as payment are in a manner penalized for accepting the card. What do I mean by they are penalized? They pay a percentage of the amount of the charge to the card issuer, typically one or two percent. This effectively reduces the amount that the supplier earns on the sale. For businesses struggling to stay afloat this penalty could be substantial. If a consumer pays cash for the transaction then the supplier does not incur this fee from the card issuer because there is no card issuer involved in the transaction.
With that in mind, the best strategy for the consumer is to pay cash for everything possible and support local merchants whenever possible.
Have you encountered any unsolicited credit card offers?
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