Credit card promotions - Compare & ApplyBy Joe Taylor Jr.
Using credit cards wisely means getting strategic about when you apply for new accounts and how you choose your banking relationships. Banks face similar challenges. To keep investors and regulators happy, they've got to balance their portfolios across multiple levels of risk. If you fall into a consumer category that a lender wants to see more of, prepare to field some compelling credit card deals.
Types of credit card deals
Banks use a variety of special offers to lure new cardholders into their portfolios. Some of the most common credit card deals include:
Cash signup bonuses. Researchers at Mintel Comperemedia found that consumers respond most positively to cold, hard cash.
Low interest balance transfer offers. Knock down your debt faster by transferring your balance, but keeping your monthly payment the same.
Free airfare. More credit cards with miles promotions have surfaced over the past few years, as discount airlines muscle their way onto legacy carriers' turf.
Low fixed rates. Federal regulations made fixed APR credit cards rare, but a few banks roll them out for VIP customers.
Banking laws require lenders to register a copy of the terms and conditions statement for each credit card deal they offer. You'd think this rule would have a chilling effect on the market. On the contrary, the modular nature of most credit card deals makes it easy for banks to customize deals based on market conditions and on your personal interests.
Things to know about responding to credit card deals
Credit score algorithms reward you for the length of your oldest account, but punish you for opening too many accounts. Even applying for more than a few new credit card accounts over a short time can drop your score by 30 points or more. Follow these tips to get the most from credit card deals:
- Plan on paying your balance every month. Even if you plan to use a zero percent balance transfer offer, you can maximize your earnings by avoiding finance charges and service fees.
- Spread out your credit utilization. A tempting balance transfer offer can send your credit score spiraling if you leave too much of your debt on a single card. If you must carry balances, aim for about 30 percent of your credit limit on each account.
Even if you don't intend to apply for a mortgage or a car loan in the next few months, a drop in your credit score can still impact your daily budget. Many insurance companies set premiums using your credit score to help determine your risk factors. Likewise, a growing number of employers use credit checks to rank candidates during the hiring process. A flurry of account applications can make you look desperate for cash, so choose your credit card deal wisely.
What to watch out for with credit card deals
Of course, even the best credit card reward programs come with strings attached. Check a lender's terms and conditions to avoid these potential pitfalls:
Minimum spend requirements. Many credit card deals force you to use your new account at specified intervals, or to hit a spending plateau before you can cash in your signup bonus.
Rewards caps. Some credit card deals share brand names with more flexible reward programs, but a big signup bonus could mean giving up some of your lifetime earning potential.
Annual fees. Many credit cards with miles promotions waive their annual fee in the first year, but can charge $95 or more on your anniversary date. Be sure your savings don't wane in the second year of your new account relationship.
Just like the weather in Seattle, if you don't like the credit card offers you're seeing, wait a little while and check back. Even better, just use the comparison data on this page to learn about which of the best credit card reward programs might fit your current needs.