4 Stipulations to Watch Out for When Applying for a Credit Card

Applying for a credit card entails more than simply filling out the sheet at your local retailer. In fact, many of these retail credit cards have stipulations that make them undesirable. With the number of credit card offers that flood qualified individuals today, it is key to know what pitfalls to look for before you sign up and fill out an application.

#1 Adjustable Interest Rates

Most credit cards are given on an adjustable rate basis. This means you will have an interest rate that may change over time, and it rarely goes down. In most cases, the interest rate will rise due to your personal credit factors. However, a bad economy can also cause a rise in interest rates on your card. You should know a creditor cannot raise the rate on existing debt. You will still find it hard to track your costs with a rate that fluctuates, however.

#2 Limit Adjustments

Aside from just adjusting your interest rates, your creditor may adjust your limits. This may not appear to be a big problem to you, but in fact it can be very damaging to your credit if your limits drop. A limit drop will appear on your credit score as a negative report. Furthermore, if you are carrying a balance, that balance will represent a greater percentage of your total credit limits. Whenever your balance is a large percentage of your limits, your credit score will drop even more. This means you could suffer a drop of 50 points or more from just one simple rate drop.

#3 Hidden Fees

Interest rate is the largest factor in how much your credit card will end up costing you. However, there are also fees you may be unaware of for other types of transactions. For example, if you use your credit card at a specific retailer, such as an online retailer, your card company may charge you a mark up for the added risk of the transaction. Other fees to be aware of are applied for late payments. You should read your contract to see when a payment is considered late, what the procedures are for handling this and how the issue will be resolved. Often, it is resolved by a large ding in your credit, calls from a collections agency and a late payment fee that will make your original purchase 50% more expensive than you ever expected it to be.

#4 Too Many Credit Cards

This is not a stipulation on your credit card application, but you should be aware of the affect of a new card on your credit score. Having some credit is good for your credit score. On the other hand, having too much debt can be detrimental. Even applying for too many credit cards, with a credit check performed for each one, can cause your credit score to drop. To protect yourself from these problems, carry only a few major credit cards. If you must have a card at your favorite retailer, limit the rest of the cards in your wallet.

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