Free Credit Cards Can Still Cost You
Contributed by Victoria Knox
Some free credit cards still come with hefty fees
Most people with at least an average credit rating can get free credit cards, meaning the card holder does not have to pay an annual fee to open or use the card. But beware, no annual fee does not mean no fees at all. With a continuing rise in personal bankruptcies over the last few years, banks are charging stiffer penalties for late payments and transactions that exceed the designated credit limit. There are other fees that come with a free credit card as well. After all, banks and other lenders have to make money when providing services like credit cards.
Using a free credit card is rarely free
While it may be free to have a credit card, it's usually not free to actually use it. In fact, when customers use a revolving account like a credit card, it is rarely free. Customers have to pay interest on credit card balances every month. The interest, or annual percentage rate (APR), can add up every month if you carry a high balance. APRs can be fixed or variable. Variable APRs usually change when the published Prime Rate changes. Also, if you have several late payments in row, in addition to paying penalty fees, your APR can skyrocket, adding more interest to your balance each month.
Some credit cards may offer a 0% percent intro rate APR for new accounts, but usually only for a limited time. Make sure to check the fine print on a credit offer to see how long an intro rate will last before you apply for, and use, a new free credit card. Intro rate periods can vary anywhere from a few months to a year or more.
Free credit cards may have fees for balance transfers
Free credit cards with low or 0% intro APR are attractive to consumers carrying balances on other credit cards with high APRs. Such customers may want to transfer these balances and consolidate them on one card with a lower rate. Again, it's important to check offer details in the fine print before transferring a balance. Some lenders charge a flat fee for each transfer, or a percentage of the total amount transferred to the new card. Make sure a transfer to a lower rate card will still be worthwhile if you have to pay such fees.
