Here we go again.
Now that painful memories of the financial crisis have faded and the economy is stabilized, banks and other credit card issuers are feeling bolder. You know what that means … more credit card offers are already in your mailbox.
Synovate, a national credit card research firm, estimated that 2.25 billion credit card offers would be mailed by the end of 2010. In fact, during the third quarter of 2010, consumers received approximately 1.2 billion offers for new credit cards, almost quadruple the number of offers from a year ago, according to direct market research firm Mintel Comperemedia.
Regardless of which estimate is most accurate, that is nearly 4 to 7 offers for every person in the US. Each offer is a chance for the credit card industry to snag you with its biggest hook: promises of interest-free purchases for 6 months or more, even though you'll pay handsomely to transfer an existing card balance.
The promise of interest-free credit is the lure that helped get us into trouble before. The banks obviously haven't learned their lesson. Let's show them we've learned ours by resisting temptation.
Life will be easier if you can stop credit card offers from reaching you. To do that, you need to inform the 3 major credit bureaus (Experian, Equifax and TransUnion) in writing that you don't want your personal information shared for promotional purposes.
You can also call a toll-free number, 1-888-5-OPTOUT (567-8688), to have your name taken off mailing lists for pre-approved credit cards for 5 years. While you're at it, you could register with the Direct Marketing Association's mail preference service to help block unsolicited mail of all sorts. Assuming you don't actually need another credit card, I suggest getting a shredder, too, and putting it to good use on every offer that hits your mailbox.
If you're absolutely sure you need a new card, proceed with caution. The credit card business is still tricky even with all the new regulations. Start by scanning the "Schumer's Box" that should be on every credit card offer. This box lists a credit card's key features such as the annual fee, interest rate and grace period. (It's called a Schumer's Box because New York Senator Charles Schumer championed the legislation that requires it.)
Next, carefully read the entire credit card offer, especially the fine print where they delineate late payment fees and interest rates charged when you don’t follow the rules. I know you have better things to do, but there's no other way to know what you're getting into. For example, you'll certainly want to be aware if the interest rate is fixed or variable. If it is a variable rate, the card issuer won't have to give you the usual 45 days' notice before raising the rate.
No offer should quote a late-payment fee of more than $25, the limit the Federal Reserve recently set for such penalties. "Inactivity" fees for not using your credit card enough are often prohibited.
The cost of balance transfers has shot way up, though, with many credit card issuers charging up to 5% transaction fees to move your current balance to their card. ATM withdrawal fees are rising, too. You will only know about these and other charges if you examine credit card offers closely.
One last thing to consider: Just because you have credit cards doesn't mean you have to use them. Try to think of them more as a convenience than a necessity.