Beware The Credit Card Hustle

Credit card offers are easy to come by. On any given week, most consumers can expect to open their mailbox and find several offers from various credit card companies offering new low interest rates, no payments for six months, or credit limits that are well above what most of us think we are eligible for. Credit cards can be used as tools to repair damaged credit, and raise your credit score faster than sitting down and paying past due accounts off one-by-one. The problems arise when consumers get too carried away with buying now and paying later, then the credit scores take an about-face and head into lower numbers than before. Having a plan before applying for credit cards will keep you out of trouble, and give you the credit help you need.

Before applying for credit cards, the trick is to read the literature and make an informed decision. Right now, getting accepted is not the hurdle, picking the right card is. Most offers consumers are receiving in the home mailboxes, and online, are touting a low 9 percent interest rate, and some are even giving cardholders until January 2009 to make their first payment. While this looks like a sweet deal, it sours quickly when you read the pamphlet and discover the 9 percent rate is only for cardholders with above average credit, and the first payment in January is going to look more like a mortgage payment than a credit card bill.

The truth of the matter is, cardholders with below average to zero credit can usually expect their interest rate to be closer to 29 percent than 9 percent, and those with below average credit can also expect to make their first payment within the first month of having their card mailed out. Zero payments until after the new year is usually a ploy to attract consumers with higher credit scores, who will also be offered a much larger line of credit. If your credit is damaged, or you haven't established any credit in the past, the best you can hope for is about $250 to start. It doesn't seem like much, but as your credit score grows, so will your line of credit.

Using common sense when applying for credit will go a long way. Don't jump on the first offer you receive that has "pre-approved" in bold letters on the envelope. Those words mean very little when your annual fee will likely be 75 percent of your credit limit, which is billed to your credit card like a purchase. Read the leaflets carefully, and when in doubt, throw it out. Go with your instincts, and select a card that has fees and interest rates you can live with. Be realistic, and unless you have excellent credit, don't expect to receive a credit card with a $3,000 limit just in time for Christmas.

Only Charge what you can afford to pay off in a month. You will receive bills with a minimum payment amount. Unless you want to pay for a $40 sweater for six months, pay the bill in full each month. Not only will you have less debt, but you'll be eligible for a higher credit limit when you card company reviews your payment history.

Make sure that any credit card you apply for reports to all four credit bureaus: Equifax, Experian, TransUnion and Innovis. You want your good pay history to be seen, especially if you decide to make a major purchase like a new car or a home. There are fly-by-night companies out there that offer credit cards, but they either don't report to credit bureaus, or they only report to one of them, and it's anyone's guess how they determine which one. Perhaps by a coin toss. No matter what, if the company seems hokey, it probably is. There are reputable credit card comapnies who offer gradually increasing lines of credit to people with no credit or bad credit, so be aware of who you're dealing with before applying for credit.

If you would like to apply for a credit card, but don't know how to get started, watch television. Companies like CapitalOne accept applicants with below average credit, and still offer low interest rates along with fewer fees than most others. If your credit is damaged by bankruptcies or home foreclosure, other card companies like First Premier Bank and Continental offer credit cards for poor credit. While the fees and interest rates are a bit higher, the credit limit is low enough you can't get into more debt than you can afford to pay. They also report to all four credit bureaus.

Always make careful decisions when choosing where your money will be spent. Before taking on another bill to pay each month, weigh your finances and make sure you can afford an extra $200, or more, per month going toward a new bill. Never apply for credit cards if you're not sure they're real companies. Just because you got a four page glossy brochure in the mail, it doesn't mean the company is legitimate. Never use credit cards as payday advances. This is a sure way to guarantee you become accustomed to living beyond your means, and you pay extra for cash at the ATM machines with a credit card. Trust your gut instinct, if it seems too good to be true, it is.