0 Percent Credit Cards

The Pitfalls of 0 Percent Credit Cards

Many people are finding mailings from reputable credit card companies announcing their eligibility for a 0 percent credit card.  While this may seem like a great opportunity, there are some things you need to understand before you sign on the line and open your new line of credit.

The first question that probably came to mind when you open your invitation to sign up for one of these cards is probably “How do they make money doing this?” If the company is making no money on interest, you are correct in assuming the credit card company is profiting in other ways.  The upside is that the credit card companies are counting on you sticking around for a long time, or making a mistake that allows them to raise the rate. If you use your card intelligently, you can save quite a bit by taking advantage of 0 percent credit cards.

Read the Fine Print

The first thing you should do is read the fine print of the offer you receive. Most 0 percent credit cards have rules attached to them that you must follow very carefully. Often, making a late payment even one time will result in you losing your zero percent interest rate. Often, when the missed payment occurs, the company will raise your rate to an unreasonably high rate.

Pay Your Other Bills

Many of these 0 percent credit card offers include a statement that explains the credit card company has the right to periodically check your credit to ensure you remain eligible for the special rate. This means that missing payments on other bills can make you ineligible for the low rate based on credit scores.

Watch Your Spending Habits

People tend to loosen their rules on spending when they know they have no interest to pay on purchases. This is what the credit card companies want you to do, because the 0 percent credit card rate typically is for a limited, introductory period of time. Any balance you have remaining once this time passes generates interest after the assigned date. Again, these interest rates can be exceptionally high, so read the details before you make a balance that you will have to carry over outside of the zero interest period of the agreement.

Preapproved Does Not Always Mean Preapproved

Many people receive notices of being preapproved for 0 percent credit cards. Unfortunately, credit card companies send these to many people who cannot qualify. Because credit card companies can only access a very limited amount of information from your credit report, they cannot truly determine if you will pass the credit underwriting processes.

Typically, you have to have excellent to perfect credit to qualify for a 0 percent credit card. Some less than reputable companies will send these invitations out as bait to people they know will not qualify. When the person applies, the creditor will then offer an alternative card option. The alternative will usually come with a high interest rate.


Transfer vs. Purchase

Many people think that the 0 percent credit cards apply to all purchases.  Again, fine print is the key. Many of these offerings only give the zero percent interest rate on balance transfers from other credit card companies, and charge high interest on new purchases. However, if you play your cards right, this can be a great opportunity to cut your payment costs and minimize your debt.

One of the biggest advantages to having a 0 percent credit card is that you can transfer balances off of cards that have less than ideal interest rates. By paying the transferred balance off completely during the introductory period, you can often cut your monthly payments in half.