Credit card companies often use introductory tactics to bring in new customers, offering a zero percent interest rate period as part of its initial perks. You might find a company offering sign-up bonuses like rewards points, cash gifts and airline mileage to attract people to their business. Many wonder if these bonuses are worth it in the grand scheme of things. It’s crucial to be wary of companies that offer these bonuses and rewards, as most of them will end shortly before you can obtain them. It can be exciting to find such a great deal when you’re trying to sign up for a card with a reasonable interest rate to improve your credit score, but the pitfalls can do more damage than you can handle.
Credit Card Sign-Up Bonuses
Oftentimes, you won’t receive the bonus just for applying and getting approved for the credit card. Companies require that you be a customer for a certain amount of time before you can obtain the airline miles or promised rewards. This is ideal for people who plan on making purchases on their card anyway, but it’s not a perfect option for individuals trying to improve credit scores and reduce debt. If you’re going to be using the new zero interest card to improve credit, keep in mind that the introductory period only lasts a year or two before a high rate takes its place.
Other Fees and Increased Rates
It can be easy to overspend on a zero interest card because, let’s face it, you don’t have to worry about any interest. What you charge to the card is what you’re going to pay, so people get spend-happy with their new found money. However, overspending isn’t the only problem card holders face. These companies normally charge a substantial fee if you want to transfer your balance, totaling more than three percent of the amount you transfer. This cost should be considered against any bonuses the credit card company offers as it could hinder your ability to create a proper debt relief plan.
If the full balance on your card is not paid off once the introductory period has ended, you’ll pay full interest on all of the purchases you’ve made in the past. This rate can be increased without you knowing it if you do not make payments on time.
Problems with Your Credit Score
In the beginning, transferring old cards onto a zero interest one will boost your credit, but only if you do so to tackle any debt you have and use the card in a responsible manner. However, achieving an excellent credit score is rarely an easy task to accomplish and zero interest cards are not often the right strategy to use. In fact, opening a new credit card can have a negative impact on your score and transferring debt from one card to another does nothing to get rid of the hit your credit report’s already taken. Having a card that is close to its credit limit is looked down on by scoring professionals. These issues can be overlooked if you use the card reasonably and wisely.
Is It Worth It?
It’s risky to transfer your debt problems from one card to a zero interest balance unless you have a specific strategy to attack all of that debt within the sign-up period. Oftentimes, signing up for these cards is more trouble than they’re even worth as it could take weeks to be approved and months to fully transfer all of your balances. The more time you wait to transfer your debt from other cards to the new one, the shorter that introductory period becomes.
As with any other credit card, you need to do thorough research on specific companies before signing up for the first one that you see. Look for cards with a high limit that allows you to pay off your debts, and a card with a narrow range of interest rates that will show up after the new customer period has ended. Using the right credit card will have less of an impact on your credit score and can even be advantageous to your mounting debt problems. A good card will make you a happy customer even after the introductory period has passed because you know you’re getting a great rate with a reputable company.
Once you sign up for one of these bonus cards and the intro period has passed, don’t expect to be able to obtain it again. These companies specifically leave these sign-on handouts to their brand new customers, and older clients will be forced to deal with just about any interest rate the company throws at them. While you can try to contact your credit card company to ask for a lower rate, these rates are meant for newer clients who are just signing up for their own credit card.