What is the Catch to a No Interest Credit Card?

Jan
7
2013

creditCardsCredit card issuers are sending out more credit card offers and a common offer is for the a no-interest credit card. The no interest period time frame is usually between 6 months and one year. Just because the no-interest credit card offer are showing up in your mailbox, it doesn’t mean you’ll actually be approved for one. Credit card issuers prescreen or review your credit report before sending out their pitches, but your credit score or financial situation could change for the worse by the time you fill out the application.

They seek low risk consumers

These credit card Issuers want cardholders who pose the smallest risk of default, so consumers typically must have a great FICO credit score — well into the 700s — to qualify for a zero percent credit card. Those with credit below the optimal standard may still qualify for a low interest rate, but it might not be zero.

Watch the intro period

Even if you qualify for zero interest, watch your financial behavior during the introductory period. If your credit slips, you may be hit with a relatively high interest rate after that teaser period expires. If you have a remaining balance at that time, the interest could sting. You need to remember that these credit card issuers are in the business of making money, not giving away free credit.

The best way to take advantage of a zero percent credit card is to pay down a huge debt transferred from an existing credit card during the introductory period. The key is to make sure the math works in your favor. Most credit cards charge a balance transfer fee of about 3 percent of the amount transferred, so keep that in mind if you’re moving over a high balance. Also, make sure you can pay off your debt (or reduce it substantially) by the time the new card’s zero percent introductory period is up. Otherwise, you’ll be stuck paying interest, possibly at a higher rate than what was on your original card.

JRU on 60 Mins SetCredit Reporting Expert, John Ulzheimer, is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a Contributor for the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry.  Follow him on Twitter here.

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