Understanding Credit Card Offers

When you receive an offer to apply for a credit card, it is important to understand what the details and the terms and conditions are before committing yourself. Here are a few important points to remember:

I received an invitation to apply for a credit card. Does that mean my application is guaranteed to be approved?

No. There are two types of credit card offers namely; pre-screened and invitations to apply. Invitations to apply simply ask you to apply for a card. Unlike pre-screened offers, invitations do not require a firm offer of credit. The company will use the information you provide in your application, along with any information on file about you at the major credit reporting bureaus, to make its decision about your application. Issuers are required to assess the applicant’s ability to pay before opening a new account or increasing a credit limit.

What does it mean when a company says its credit card offer is “pre-screened”?

Pre-screened offers are firm offers of credit based on your credit history. Federal law requires that pre-screened offers contain a firm offer of credit. The only exception to the guarantee is if you experience a serious decline in creditworthiness after the offer was made.

What information is the credit card company required to disclose when it makes an offer of credit?

By law, credit card companies must include the following information:

• The Annual Percentage Rate (APR)—This refers to the finance charge expressed as a yearly interest rate.
• Variable APR’s—If applicable, as well as when and how the interest rate will change.
• Grace Period—Details of the period during which finance charges do not accrue on purchases.
• Annual Fees—Some issuers charge annual membership fees ranging from $20-$75 or more.
• Fees—Any fees that you may be liable for, such as cash advance, late payment or over credit limit.
• Balance Computation Method— The method used to calculate the finance charge.

If I respond to a pre-screened offer, will I be guaranteed to get the high credit limit mentioned in the offer?

Probably not. When you apply for a credit card, you do not know what credit line you will receive. Credit card offers often state ‘You have been approved for a credit line of up to $100,000’. The key words are “up to,” meaning that the company may give you a lower credit limit.

I got a new credit card a few months ago. Can my interest rate be increased?

Your rate can increase within the first year if:

• An introductory rate expires (must be at least six months after opening the account
• Your card has a variable interest rate tied to an index and the index changes
• You are more than 60 days late in paying your credit card bill
• You are participating in a debt management plan (workout agreement) with the credit card company and you do not make your payments as agreed

It is important to remember that no matter what the credit card offer is, credit cards can either make life easier or if they are not used wisely, they can become a huge financial burden. If you do decide to use credit cards, remember these simple rules:

• Keep track of all your purchases
• Do not spend outside your budget
• Pay off your balance on all of your credit cards at the end of each month
• Do not loan your credit card out or give out your credit card information to anyone but reliable companies.

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