Are Free Credit Cards Really Free?
When a person fills out a credit card application and a free credit card shows up in the mail a few weeks later, it may seem like a great deal. The card cost nothing, and it's available for use immediately. However, "free" credit cards are not exactly free because most people will end up paying some sort of fee to the credit card company at one time or another.
"No Fee" Credit Cards
Free credit cards are more commonly called "no fee" credit cards. "No fee" means that the credit card company does not charge any sort of issuing fee to the person who will be the card's owner. The card's terms and agreements may also boast that the credit card company will not:
- Charge late fees
- Charge for cash advances
- Charge the cardholder if a balance is transferred to or from the card
- Charge a fee on an annual basis for the card to remain active
A "no fee" credit card, such as the type described above, is not really free as long as the cardholder has any sort of balance on the card.
A "no fee" credit card usually sounds enticing because nothing must be paid in advance for the card. However, these cards usually come with a relatively high interest rate that must be paid on the card's balance. So, this is how the credit card company makes money from the user.
Free May Not be the Best
Free or "no fee" credit cards may not be the best choice for anybody who normally holds any sort of balance on their credit cards. These types of credit cards often charge a significantly higher interest rate than credit cards that have a minimal annual fee (such as $25 per year), and in the long run, a "free" credit card will end up costing the cardholder a large amount of money paid in interest.
Free or "no fee" credit cards may also not benefit people who pay their entire credit card bill every single month and never carry any sort of balance on their card. A better type of card for this type of person is one in which some sort of reward is given per dollar spent with the card. Rewards are sometimes airline miles, cash credits, or gift certificates to particular stores. Free credit cards rarely offer such reward programs.
Beware of the Late Payment Promise
Sometimes, "no fee" credit cards state that they will never charge a fee to anyone who sends payments late. This may sound like a great benefit to people who know that they typically send their payments late several times a year.
However, what the "no late fee" cardholder doesn't always realize is that just because he or she consistently sends late payments to the credit card company and never is charged for it doesn't mean the credit card company isn't reporting a late payment history to credit reporting agencies. This can secretly destroy a person's credit score.
Free Credit Cards with Low Interest Rates
By all means, a responsible person in search of the best credit card should research all types of cards with various features, such as low interest rates, no fees, reward incentives and all other factors that make using credit convenient.
There are several Internet sites that allow a person to compare many credit card offerings in one place.
It's always important to make sure that the terms and conditions of a credit card are not temporary and will change after an introductory period expires.
In the long run, there really isn't any such thing as free credit cards. While the majority of credit cards state specific fees and penalties upfront, free cards build the cost for extending credit to you into higher interest rates.