How to Choose a Credit Card: Offer Terms to Know
When it comes to choosing a credit card, many companies go to great lengths to make their offers as attractive as possible. From navigating special interest rate offers to “preselected” status, the best way to weigh your options is with a solid understanding of the language being used.
So let’s decipher some of the language that comes with “EXCLUSIVE! IMPORTANT! LIMITED TIME ONLY!” credit card offers you might get via email, mail or social media.
Once you understand the lingo, you’ll be able to translate what those enticing applications are saying — and whether they’re actually a good idea for your spending needs.
Mikel Van Cleve, advice director of personal finance at USAA, suggests that when you review credit card offers, repeatedly ask yourself the following questions:
- Is this a credit card that I really need?
- Is this offer a better deal for me or the card issuer?
- What is it costing me to apply for these offers?
To help you answer these questions, and for credit card offer language, deciphered — read on:
What an offer says: Congratulations! You’re preselected for a card!
What it really means: Congratulations! Only you and 1.2 million other individuals received this offer. You’re not preselected for the card, just for the privilege of asking for one – and that doesn’t necessarily mean you’ve been preapproved for the card.
What an offer says: 19% annual percentage rate (APR)
What it really means: This is the interest rate typically associated with stuff you buy when you don’t pay off your balance in full each month. But take note: Credit cards can have more than one interest rate — like one for purchases, another for cash advances and a third for balance transfers. Don’t take the first number you see at face value. It’s up to you to find the details in the terms and conditions section of the offer (even if it’s in teeny-tiny mouse print). Or, look for a credit card company that doesn’t practice hiding sneaky penalty APRs. At USAA, we’re proud to be transparent about our credit card rates. Nothing to hide here!
What an offer says: Don’t worry about going over your credit limit
What it really means: Definitely worry about going over your credit limit! Some companies charge an over-the-limit fee: Even though they let you go over the credit limit, they may still collect a fee for it. (And, they might raise your interest rate, via the previous point.) This comes down to the credit card company, too: USAA never charges increased APRs for things like this. So choose wisely!
What an offer says: 0% fixed APR
What it really means: Always check the fine print when someone’s offering a zero interest rate: there are definitely terms and conditions applied. You might think the 0% rate applies to a balance transfer, but maybe it’s only for purchases — and only for a limited time. After the introductory period ends, you’ll start paying the interest rate that was contracted with you at the start of the agreement on outstanding balances or new purchases. That said, if you pay your account in full every month, there are no interest charges to worry about — definitely the best solution.
What an offer says: 5% cash back
What it really means: Cash back is a common kind of reward for some credit cards, but there can be limitations. You might get inconsistent amounts of cash back for some purchases over a specific period of time with a much lower base rate. Plus, some cash-back cards have spend limits, and once you hit those, your cash-back percentage may get much lower. (At USAA, we offer several rewards cards with no spend caps, so you can earn unlimited rewards.)¹ Rewards cards can be a great deal, as long as you read the fine print, but make sure you’re not spending more just to nab extra rewards. As Van Cleve notes, “When thinking about offers in general, consider this: ‘Am I paying anything extra to get rewards that I don’t really understand? Is it costing me more?’ Because the last thing you want to do is spend more to make more.”
What an offer says: Transfer a balance today!
What it really means: Sometimes a balance transfer can be a good idea, like if you’re serious about paying down debt and have a concrete plan to do so during a 0% APR grace period. But if you’re developing a habit of bouncing balances between cards on a regular basis, the last thing you need is to apply for another card.
Van Cleve adds: “Don’t play the ‘balance transfer’ game! Trying to transfer a balance from one card to another usually involves a fee. So the more you transfer, the more balance transfer fees you may accrue. Plus, the balance transfer introductory rate may apply only to the balance transfer but NOT to additional new charges.”
What an offer says: Low minimum payments
What it really means: Beware the seductive lure of any offer that makes it too easy for your brain to start persuading the better angels of your nature to pipe down. Go ahead, buy that new $1,000 TV and charge it on your 0% interest rate credit card. If you don’t pay if off before the introductory period ends, no one’s going to fault you. Each month you’ll have to make only a small minimum payment, usually 2% or 3% of your total balance. But what you might overlook is that after the introductory period ends, your interest rate jumps. That could cost you almost $300 in interest if you made only minimum payments over a series of months until you paid off the balance.
Because you can never know too much, here are a few more common credit card terms to know:
Annual percentage rate (APR): The yearly percentage rate charged when a balance is held on a credit card. This rate is applied each month that an outstanding balance is present.
Credit limit: How much total money you can charge to a credit card account. This is also known as a “credit line.”
Fixed rate (or fixed APR): An annual percentage rate that does not change throughout the year, unlike an introductory APR that changes after a specific period of time.
Grace period: The time during which you’re allowed to pay your credit card bill without being charged a finance and/or late fee. This period is typically 10–28 days.
Introductory rate (or intro APR): A temporary, lower annual percentage rate, after which the APR is raised.
Interest rate cap (or cap): The maximum amount of interest that can be charged to a customer, typically established by state or federal law.
Variable interest rate: With variable-rate cards, the APR changes when interest rates or other economic indicators change. This is also known as a “floating rate.”
Now that you’ve familiarized yourself with common credit card terms and better understand how to choose a credit card, it’s time to get personal and find the card that’s right for you.
Try the USAA Credit Card Recommendation Tool to identify the best credit card based on your spending and borrowing needs.
About the Professional: Mikel Van Cleve is a CERTIFIED FINANCIAL PLANNER™ professional and advice director for USAA. Mikel has 14 years of experience in the financial services industry, and his advice has appeared in numerous outlets, including The Wall Street Journal, The Associated Press, CNBC.com and Business Insider. He writes personal finance blogs for the Ask USAA member community and participates in the USAA Money Drill podcasts. Prior to entering the financial services industry, he served in the Coast Guard.
This credit card program is issued by USAA Savings Bank, Member FDIC.
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