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Credit cards

Credit card buying guide

Last updated: November 2013
Getting started

Getting started

Things are looking rosier for credit-card holders. Consumers are paying down balances and facing fewer punitive actions by credit-card companies such as higher rates, late-payment fees, and canceled cards, according to a nationwide survey by the Consumer Reports National Research Center. And with reports of delinquencies and defaults down, card issuers have resumed stuffing your mailbox with offers, many of them featuring low-rate introductory deals or lucrative rewards.

New federal rules barring many abusive practices by card issuers seem to be having an effect. Only 12 percent of the 1,258 Americans surveyed in July said their credit-card companies had generally treated them unfairly, down from 22 percent in 2009. More people are being approved: Only 14 percent were denied a card in 2011, compared with 24 percent the previous year.

But that doesn't mean you can let down your guard. Thirty-five percent of survey respondents said that in the last year, they had experienced at least one credit-card problem, such as a new annual fee, higher interest rate, lower credit limit, or limits on rewards. Average interest rates on new cards were 14.24 percent in April 2013, up from 11.64 percent in May 2009, according to LowCards.com, a card-comparison site. . And card issuers can change interest rates, terms, and conditions at any time.

Attractive offers

If you're among the 56 percent of Americans who pay off their card balances each month, you might want to take advantage of offers promising introductory bonuses of cash, miles, or points. The best rewards-card deals are reserved for people with credit scores of 730 to 740 and up.

If you regularly carry a balance, a rewards card probably won't be a good fit, since they tend to have higher interest rates than standard cards, and you might pay more in finance charges than you would gain in rewards. But we've also seen tempting terms on non-rewards cards, such as low introductory interest rates. Our credit card comparison chart will help you pick the right card for your habits.

Here's what we found when we analyzed dozens of credit-card offers.

Up-front bonuses

Some cards offer cash bonuses for signing up and spending a certain amount--usually from $500 to $3,000--within the first three months. The Chase Freedom card and Citi Dividend World MasterCard offer $100 each in up-front cash.

Teaser rates

These low interest rates are attractive to people who carry a balance. The Citi Simplicity Card, for example, offers a zero percent APR on purchases and balance transfers for 18 months. The PenFed VisaPromise card, which is available to members of the Pentagon Federal Credit Union, has a 7.49 percent APR on purchases for the first 36 months, then a variable rate, currently 9.99 percent. And it has a 4.99 percent APR on balance transfers for the life of the balance as long as you take advantage of the offer soon after opening the account. (Membership in PenFed is free for members of the military and their families and for U.S. government employees, among others; people can also become members by joining the National Military Family Association for a $20 fee or Voices for America's Troops for $15.)

Free airfare

Frequent flyers might be enticed by "free round-trip ticket" promotions by airline and bank cards. Bank cards usually let you redeem points with any airline, so you generally can get an unrestricted flight without being subject to blackout dates and limits on the number of reward seats. With cards issued by airlines, you might need to use up to 50,000 points to get an unrestricted flight on the dates you want to travel.

Annual fees

A new trend in rewards cards is to offer two versions of a card: one that carries an annual fee and a no-fee version with a smaller payback. The annual-fee versions might offer a higher introductory point bonus than the no-fee ones. The no-fee Capital One VentureOne Rewards card, for example, pays 1.25 miles per $1 spent; the Venture Rewards card, which has a $59 annual fee (waived in the first year) earns 2 miles per $1 spent. Both versions come with a 10,000-mile bonus if you spend $1,000 in the first three months. After the first year, the VentureOne card is the better travel-rewards option for people who spend less than $8,000 a year.

American Express has a "preferred" version of its Blue Sky and Blue Cash cards. Each has an annual fee of $75, but they come with larger sign-up bonuses and better cash-back and points options than the no-annual-fee versions. And there are additional perks, such as the Blue Sky Preferred's annual $100 "airline allowance," which can be applied to baggage fees, in-flight food, and other incidental in-flight purchases.

Airline cards usually charge an annual fee, but many waive it in the first year. Some airline cards--United's MileagePlus Explorer Visa Card is one--provide perks such as priority boarding and free checked baggage that can offset the annual fees. And several premium travel cards from banks and airlines offer additional benefits, such as travel insurance, trip-delay coverage, rental-car insurance, and occasionally no foreign transaction fees.

Shrinking gas perks

Several cards used to pay 5 percent cash back on gas, but the best you can hope for these days is about 3 percent. One holdout, the PenFed Platinum Cash Rewards Visa card, still pays 5 percent. If you always buy the same brand of gas, you might benefit from an oil-company card. At the moment 5 or 6 cents back per gallon of gas is what most gas station cards offer. But beware: The Shell, Citgo, and Phillips 66/Conoco credit cards carry an APR of 25 percent.

If your credit is poor

If you have a low credit score, your only option might be a secured card, which requires a security deposit. But some cards are far better than others, and you need to be on alert for onerous fees.

The Capital One Secured MasterCard, which has a 22.9 percent variable APR for purchases, is a decent option for people who want to repair or build their credit history. It reports to all three major credit bureaus. It has a $29 annual fee. The card requires you to put up a minimum security deposit of $49, $99, or $200 depending on your credit worthiness, for an initial credit limit of $200.

Watch out

The First Premier Bank Gold Card has a 36 percent APR for purchases and cash advances, a $95 processing fee, and a $75 annual fee for the first year, which drops to $45 the next year. But at that time, a monthly service fee of $6.25 kicks in, for a total of $120 in setup and maintenance fees from year two onward--all for a card that has an initial credit limit of $300.

Improving picture for credit-card holders

Things are looking better for the finances of credit-card holders this year, according to a new survey by the Consumer Reports National Research Center. Consumers are paying down their balances and facing fewer punitive actions by credit-card companies, such as higher rates, late payment fees, and canceled cards.

And with reports of credit-card delinquencies and defaults down, issuers are back to stuffing mailboxes with offers for new cards, many of them featuring lucrative rewards. Mintel Comperemedia, a research company that tracks direct marketing, reports that 23 percent of credit-card offers from January 2011 to April 2011 included an additional cash incentive, compared with just 1 percent during the corresponding period in 2007. In addition to those bonuses, some card issuers are offering low introductory interest rates on purchases and balance transfers.

But watch out--some of those rewards offers have gotchas buried in the fine print that can limit the payback on the cards, according to new credit-card deals. And some of the best rewards come with cards that carry an annual fee.

Survey highlights

If you'd like to take advantage of an attractive offer, the good news from our survey is that more people are being approved for credit cards. Only 14 percent of respondents were denied a credit card in 2011, compared with 24 percent in 2010.

But the picture remains complex. Though the respondents to our nationally representative survey generally reported better treatment from card companies, some are still struggling with debt. Here are some highlights.

  • Only 12 percent said their credit-card companies had treated them unfairly in general, down from 15 percent in 2010 and 22 percent in 2009.
  • Thirty-seven percent indicated that they had experienced unwelcome news about lower credit limits, higher rates, late payment fees, canceled credit cards, etc.--down from 47 percent in 2010.
  • More than half received good news regarding increased credit limits, lower rates, or expanded rewards--up from 46 percent in 2010.
  • The share of cardholders who have revolving balances on their credit cards has declined from 46 percent in 2009 to 42 percent in 2010 to 39 percent in 2011.
  • Median debt level on credit cards (among those carrying balances) in our survey was $3,414 this year, down from $3,793 in 2010, and $4,928 in 2009.
  • Overall, 51 percent were highly satisfied with the service they receive from their credit cards, versus 45 percent a year ago.

Still disgruntled

Despite those positive trends, credit cards remain one of the lowest-rated services ever analyzed by the Consumer Reports National Research Center. Credit cards fare just a smidge better than computer tech support, a perennial low scorer.

Satisfaction was highest among people who pay off their credit cards every month and enjoy the perks of credit cards, such as convenience and cash back or point rewards. But another segment of consumers still struggles to manage its cards. Fourteen percent said they would be unprepared to meet financial challenges in the next six months without credit cards, down from 18 percent in 2010 and 21 percent in 2009. And 22 percent of people carrying balances owed $10,000 or more in credit-card debt. Paying off that debt remains an elusive goal for many people--14 percent said they had no idea when they'll be able to pay off their balances.

Credit card gotchas

Reading the fine print of rewards programs before you sign up can steer you away from cards with these catches.

Seasonal savings

Some cards, such as the Chase Freedom and Discover It cards, offer 5 percent cash back in rotating categories that can correspond to the season in which people generally shop for those items. But you must opt in each time. And there's a cap on how much you can earn in each category.

Spending tiers

If you're not a big spender, watch for terms that require you to spend a certain amount to get the advertised perks. For example, Walmart's credit card offers up to 1 percent cash back on all purchases. But, in the fine print, you'll see that you earn just 0.25 percent on the first $1,500 a year in purchases, and 0.5 percent on total annual purchases from $1,500 to $3,000. You begin earning 1 percent back on purchases only after you've spent $3,000 in a year.

Hidden caps

The Citi Dividend Platinum Select Visa pays a $100 bonus after you spend $500 in the first three months, but it has an annual cap of $300 on certain rebates. Bank of America's BankAmericard Cash Rewards Visa pays 3 percent on gas, 2 percent on groceries, and 1 percent on everything else. But after you spend more than $1,500 on gas and groceries in a quarter, your rewards on future purchases in those categories drop to 1 percent.

Expiration dates

Check for expiration dates on rewards, especially with travel cards, because it often takes a long time to accumulate enough points for a ticket.

Missed-payment penalties

Some cards take away your month's points if you miss a payment and might charge you a reinstatement fee of $25 or so to get the points back. Discover cards take away all your cash back if you miss two straight payments. Setting up account alerts for payment due dates or arranging to have your bill automatically paid out of your checking account can help you avoid losing your rewards.

   

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