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Understanding Credit Card Applications

While some credit card applications are more straightforward than others, the vast majority of applications require a close examination.The key areas that need scrutiny are interest rates, 0% APR introductory offers, fees (such as late, balance transfer, or over the limit fees) and default interest rates.Learn more about credit card applications.

Interest Rates: Many credit card companies offer tiered interest rates.These rates are based on the issuing company's review of your credit.With some companies, a total of three rates may be offered, with the best interest rates reserved for applicants with the best credit.And the highest interest rates reserved for those with less stellar credit.In many cases, the best rates may be 8 or 9 percent lower than the highest rates.

Other companies offer a broad APR range, which can also be as wide as 8% percentage points. Ultimately, however, range based APRs offer the opportunity for consumers who lack super-prime credit to get a better rate than a three tier rate system, as the credit card company can determine your rate down to ¼ of 1%, rather than placing you in a tier that is 4% higher than the best offered rate.

0% APR Offers: Much like interest rates, some 0% APR offers are tiered. Credit cards that offer tiered 0% rates may offer one person a 0% APR for 12 months and another a 0% for 3 months. Unfortunately, if you apply for a card with a tiered 0% rate, you will not learn how long your introductory rate lasts until the card arrives in the mail. This is a big reason you must read the fine print before you make any transactions with your new credit card.

Credit Card Fees: Most credit cards come with a variety of fees. Some of these fees can be avoided by using your credit card responsibly, while others are built into most credit card contracts. Here are the main fees you can avoid:

• Late Fees: Late fees typically run from $15 to $39, although most people will be charged higher amounts, as many credit card companies charge the highest fees on anyone with a balance of more than $250.
• Over-the-Credit-Limit Fee: These fees vary from company to company, but the average fee is around $30. Paying attention to your credit card balance by monitoring your spending online can help you avoid these issues.

While some credit card fees can be avoided, others are based around certain transactions. These include the following:

• Cash Advance Fees: Generally, you can expect to pay 3% on any cash advance. Additionally, you will be charged a substantially higher interest rate on cash advances, regardless of you credit. Often these rates are in the mid to high 20% range.
• Balance Transfer Fees: Most credit card companies charge a flat 3% fee on all balance transfers. While a nuisance, paying a 3% balance transfer fee to obtain a 0% rate is generally worth the expense.
• International Transaction Fees: Most credit card companies charge a 3% international transaction fee, although some charge 4 or 5 percent, while others charge 2%.

Default Rates: Default interest rates are generally close to 30%, though they can be higher in some instances. Credit card default rates can be triggered by making a late payment or going over your credit limit. Thus, setting up online payments and closely monitoring your account are essential. While factors such as the seriousness of the issue and your account history can help prevent default, you should use every tool available to you to avoid these penalty rates.

Final Thoughts: Now that you know what to look for in a credit card application, you're armed with the knowledge you need to find the best credit card you qualify for. Just remember to take advantage of online card management tools so you can make sure to avoid credit card default, as falling into default can turn your dream credit card into a nightmare.