Credit cards come in two types—store retail cards and bank cards such as Visa and MasterCard. It’s been recognized for a long time that store retails cards are never as good a deal as bank cards, though there are some bank cards that rank up there as the worst credit cards of all time. A smart credit user needs to recognize some of the tricks credit card issuers use to make you feel like you are getting a good deal when you sign on for their credit card.
Store/Retail Credit Cards – Beware
According to MSN’s Money column, Macy’s has the worst retail credit card in the marketplace. If you carry a balance, you’ll pay 23.99% interest. Picture what this means to you. If you haven’t paid off your purchase in a year, you will have come close to paying 25% more for it. Let’s say you bought a $100.00 dress. At the end of the year that dress will cost you $123.99.
Don’t be fooled by the 10 to 20% discount you are offered to open up a credit card account. That’s only the first time you purchase something. Unless you are a very disciplined person who pays off you account every month, that’s the only time you will save any money.
In general all of the store brand credit cards aren’t going to help your credit situation improve. They make it easier to spend more than you have. And having too many retail credit cards tends to hurt your FICO score.
Cash-Back Rewards Cards
You’d think a cash-back reward card would be a great deal. But it isn’t always. Bank of America came out with a credit card it called the “Money Return Platinum Plus Visa.” What was the hook? You got 10% cash back ONLY if you carried a balance on your credit card. Considering that the 10% cash back was promised against anywhere from 9.99% to 19.99% interest on the balance you owed, you had to play it pretty slick to benefit from this credit card deal.
The only way you could break out ahead on this deal was to charge a lot, and pay off enough of the balance each month to just break even on the minimum monthly interest fee. It’s far more likely that the deal only reduced the effective interest rate to 0% to 9.99%. Very few people got ahead with this deal.
Cash back is a great deal. Just make sure there aren’t any hidden stipulations in the small print. And don’t let the cash back lure you into making purchases that are unnecessary. It’s only a deal if you really need it.
Subprime Credit Cards
There’s always a new horrible offer ready to pop up, but one of the worst the market saw, and probably one that lit some fire under the CREDIT CARD Act, was First Premier Bank’s Centennial Gold MasterCard. This subprime card offered a 9.9% fixed rate. On the surface, this was a fantastic interest rate for a subprime credit card.
What made this credit card a horrible value was the add-ons and the low credit limit. The set-up fee of $29.00 may not have seemed too high, but there was also a program fee of $95, an annual fee of $48.00, and a monthly service fee of $7.00. You paid all this just to have a credit limit of $71.00. Unfortunately, there were people who were desperate and gullible enough to take advantage of and offer that was really taking advantage of them.
Secured Credit Cards
New Millennium Bank has the reputation for issuing the worst secured credit card offers of all time. Fortunately, some of the tricks this bank used aren’t legal anymore. They charged annual and processing fees to open the account. The interest rates were high, and they charged interest whether or not you paid your balance off in full each month.
It’s important to shop carefully no matter what credit card you choose. Understand the difference between the different types of credit cards and shop carefully. If all you can get is a subprime credit card, take the time to compare deals and learn how to use the credit card to your advantage instead of the issuer’s. If you need to rebuild your credit, choose the best secured credit card offer.
No matter who the credit card issuer is, recognize that they offer credit to make money. If you aren’t careful, they will make more money off you that you want them to.
