Buzz
It’s essential to pay close attention to the fine print in nearly everything—especially when it comes to credit cards. Credit card companies use tricky tactics to entice you to sign up. They present attractive offers that seem perfectly legitimate, but if you overlook even the smallest detail in the fine print, you’ll end up paying for it. Here's what to be cautious about, particularly when applying for a new credit card.
They Trick You With 0% Deferred Interest Deals
The classic 'deferred interest' scheme builds on the appeal of '0% introductory APR' cards. With these offers, you won’t pay interest for a specified period—usually between 6 and 18 months. However, once that period ends, any remaining balance is charged at the card’s standard interest rate, which can be quite steep. It's a simple concept, but easy to miss.
The deferred interest deal is similar, with one major catch: if you don’t clear your balance by the end of the introductory period, you'll be charged interest retroactively at the standard rate. For example, if you have a '0% for 6 months' deferred interest card and leave even $1 unpaid after the six-month period (or whatever the time limit is), you’ll owe interest for the entire six months—on your original balance.
Deferred interest promotions are often linked with store credit cards. That said, deferred interest can be beneficial if you're extremely diligent about paying off your balance during the promotional period. Unfortunately, most people aren’t that careful, which is exactly why credit card companies offer this kind of deal.
Regardless, when you open a new credit card and intend to carry a balance, make sure you thoroughly understand the fine print regarding their interest policies. Do they waive the interest, or merely postpone it? If it’s deferred and you still have an outstanding balance, be prepared for unexpected interest charges down the line.
Turning Your Travel Rewards Into Less of a Reward
While we're generally fans of travel reward hacks, these promotions often come with fine print that can easily trip you up.
For instance, some companies will cancel the promotion if you're already enrolled in a similar program.
Here’s an example shared by consumer advocate Christopher Elliott on his blog, Elliot.org:
When Joan DePalma, a retired social worker from New York, recently applied for a Delta-branded American Express card, a representative promised her a $50 credit after her first purchase, plus 25,000 miles — enough for a 'free' domestic round-trip ticket.
But when she received the card, she was denied both the credit and the bonus miles,” she explains. The reason? She already had a Delta American Express card, and the offer was only for new applicants. “I’m canceling the card,” she says.
In addition to that, here are a few more fine print details you should be mindful of:
Fees that don’t count as rewards: Fuel surcharges, for instance, are often excluded from rewards travel (and in some cases, it's actually prohibited by law, so credit cards aren't entirely to blame). Still, these charges can add up to hundreds of dollars.
Restrictions on companion tickets: To qualify, you may have to purchase a more expensive “unrestricted economy-class ticket,” which forces you to spend more on an upgraded flight.
No cancellations: Frequently, the fine print states that if you cancel or attempt to reschedule a flight, you’ll lose all your points.
Travel rewards can certainly be worthwhile, just make sure you fully understand what you're signing up for and what your miles will actually get you.
Raising Your Interest Rate
The Credit CARD (Credit Card Accountability Responsibility and Disclosure) Act of 2009 prevents credit card companies from increasing your rate on an existing balance. However, there are a few exceptions, and credit card companies make the most of these. They can raise your rate under these conditions:
Introductory offers: Your rate can increase if your credit card company provided a promotional rate only for a limited time. It's understandable—0% interest can't last forever. According to Credit.com, the promotional period must last for at least six months.
Variable rate cards: If you have a variable rate card (which most cards are, especially after the law passed), your rate can fluctuate if the prime rate changes.
The end of a 'hardship' period: If you negotiated a lower interest rate with your credit card issuer due to financial hardship, that reduced rate likely comes with a time limit. Once that period expires, your rate can go up again.
If you're 60 days late: NerdWallet explains, after two months of missed payments, your issuer has the right to apply a penalty APR, which can be as high as 29.9%.
Your credit score drops: If your credit score takes a hit, your credit card company can raise your interest rate. The good news is they have 45 days to inform you of this increase, and if they do, they must review your credit again in six months and reduce the rate if you've improved your score.
In any case, your credit card issuer must notify you of any rate increase within 45 days. You can opt out during this time. However, doing so means you’ll need to stop using the card and pay off any remaining balance over the next five years. Money Under 30 advises:
Typically, you must reach out to the card’s customer service to opt-out. If you decide to opt-out:
You’ll continue paying off the existing balance at your current (lower) interest rate.
Once the debt is cleared or the card expires, your credit card will be closed.
If you don’t opt-out by the deadline, your rate will increase and you won’t be able to change it later. So, if you're carrying a balance and the credit card company warns you about a significant rate hike, it's best to opt-out (unless you can pay off the balance right away). This is when you should ignore any concerns about how closing your card might impact your credit score and simply escape that awful interest rate.
Naturally, your best option is to get out of debt and stop paying interest altogether. We’d be remiss not to remind you that paying interest is like flushing money down the drain. If you're working on paying off your debt, keep your interest rate as low as possible so you can focus your money on what's important.
Interest rate increases accumulate over time, so it’s important to be aware of your credit card company’s ability to raise your rate. Stay alert for any hikes. If you’re making timely payments, you might be able to negotiate a lower rate with your credit card issuer.
Charging You Sneaky Hidden Fees
You’re probably aware that you’ll face a late fee if you miss a credit card payment; that’s a given. However, there are plenty of less obvious fees that credit cards may charge. While the CARD Act has eliminated many of these fees, a few still linger.
For instance, balance transfer fees are quite common, especially when they accompany those '0% APR' promotions. The issuer might not charge you interest for a limited time on your transferred balance, but they’ll likely still impose a fee. Trent Hamm from The Simple Dollar suggests:
Balance transfer fees typically range from 3%-5% of the transfer amount, though some cards may offer to waive this fee entirely.
Before signing up for one of these enticing offers, make sure to read the fine print – and consider calling the company to inquire about options with a lower fee. It may be worth accepting a slightly higher introductory interest rate if it helps you save significantly on the transfer fee, especially if your credit isn’t good enough to qualify for a no-fee transfer card.
Some cards charge an annual fee, particularly rewards cards. While many promotional offers boast 'no annual fee,' that typically only applies for the first year, after which you'll be on the hook for about $100 to keep the card open. Some rewards cards, however, do make it worthwhile. Foreign transaction fees (or conversion fees) are also common, and if you use your card abroad, those fees can quickly add up. Fortunately, it's not hard to find a card that doesn't charge this fee.
Charging You Residual Interest When You Close Your Account
Imagine you close your credit card and pay off the balance, but forget about that one small purchase still pending. This can lead to a financial headache known as residual interest. CreditCards.com clarifies that any remaining balance can result in hefty late fees and continued interest. The longer it takes to notice the unpaid balance, the more it snowballs. Here’s what they recommend:
The best way to avoid residual interest or finance charges is to ensure the balance is fully paid off,” advises Mona Hamouly, a spokeswoman for American Express. “Do not stop making payments once the account is canceled. You must continue making payments by the due date each month until the balance is paid in full.
To safeguard your credit score, also request a letter from your card company confirming that you closed the account by your request, not theirs. Hamouly mentions that American Express sends confirmation letters within 10-12 days of the closure date upon the card member’s request.
Additionally, they recommend keeping your final statement as proof that the balance was fully paid off.
Thanks to some regulatory changes, credit cards aren't as deceptive as they once were. However, they still tempt you with offers that can be misleading; it's just part of their game. Ultimately, it’s your responsibility to protect yourself, and that involves reading the fine print carefully. Knowing exactly what to look out for can make all the difference.
Illustration by: Sam Woolley
