Charles Dempsey knew it was open season on credit card prospects when he got an offer for a Dempsey family credit card.
The offer told him there were 13,000 people named Dempsey in the U.S. and touted an introductory interest rate of 6.9 percent.
“Those are just a gimmick to get me to look at that card,” says Dempsey, who as director of the Memphis Consumer Credit Association’s consumer information service deals with the financial problems credit cards may cause.
Like most people who get credit card solicitations, Dempsey threw the family card offer in the trash.
But credit card purveyors can afford to keep filling his-and your-mailbox with their offers because they get a steady 2 to 3 percent return rate and that makes the solicitations profitable, says Stephen Rhea of Leader Federal Bank for Savings in Memphis.
June to August-the vacation season-is the second highest usage period (after year-end holidays) for credit cards. Should you switch to a new card?
At least part of your decision should hinge on your financial circumstances and your willpower. But if you do decide you can handle a new credit card, get one that fits your usage habits.
Generally, people fall into one of three patterns:
– Credit-card holders who make a few purchases and pay the balance off each month.
If you’re that type of card user, you don’t want a card with an annual fee. You do want a card that includes a grace period from the time you make the purchase and receive the bill until you can make the payment without being charged interest.
– Customers who use their card frequently, but also pay it off immediately.
These are people who charge $7,000 to $20,000 a year on their credit cards, but often pay the balance off each month. They should look for a card with rewards for purchase activity. But read the fine print. Issuers may place limits on the amounts on which rebates apply or decline to pay rebates on balances transferred from other cards.
– People who carry a balance from month to month.
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If you’re one of them, the rate of interest on the balance is your primary concern. Many solicitations offer low “teaser” rates-often 9 percent or less. But most teaser rates last six months to a year. In most cases, the rate will double when the promotional percentage expires.
“They hope you will forget about it,” says Robert McKinley, publisher of CardTrak, a credit-card tracking and analysis newsletter in Frederick, Md.
Other things to consider:
– Balance transfers. Some issuers don’t allow transfers to teaser-rate offers from department store cards, others limit the amount you can transfer, and still others restrict the number of transfers you may make.
– Cash advances. Most issuers not only charge fees for such advances but also charge interest from the minute you get the money. And the rate for advances may be higher than for purchases.
– Interest calculation. Most issuers base interest charges on the average daily balance on your account. If you find a card that excludes purchases made during that billing cycle, it’s usually a good deal, says McKinley.
But stay away from any card that bases interest charges not only on what your balance was in the month immediately past but also in the month before that. Such figuring allows the issuer to charge you interest on balances even during a month you paid off the balance.
– Miscellaneous fees. Check over-limit, late payment fees, record retrieval and other fees because they may add to the cost of your card, depending on how you use it.