Holiday Credit Card Offers: Let the User Beware

Just in time for the holidays, many credit card companies are rolling out what appear to be attractive offers.

But what you think you see may not be what you actually get.

Credit card issuers battling for customers and profits have lowered the interest rates on many of their introductory offers--to as little as 0%--just as the busiest shopping season of the year begins.

But at the same time, issuers are adding more punitive fees and terms that can trap the unwary customer.

Gayle Anderson of Silver Lake discovered that when she scrutinized a recent offer from First USA, one of the nation’s largest credit card issuers. The offer encouraged her to transfer a $2,000 balance from a card with a 21% rate to a First USA card with a 3.9% rate.

But Anderson figured out that the card’s 3% balance transfer charge would overwhelm any savings she might reap since she plans to pay off the balance in a few months.

“Ewww, it’s nasty,” said Anderson, who opted to keep and pay down her higher rate card.

First USA is one of a handful of credit card companies that are trying to discourage rate-surfers, customers who shuttle their balances from low-rate card to low-rate card. MBNA also charges fees to some customers who transfer a balance, while Providian Financial eliminated very low introductory rates to discourage frequent transfers.

Such fees are just the latest in a string of new costs imposed by card issuers.

Last year, several issuers trimmed their grace periods, imposed stiffer late fees and, in a few cases, even charged borrowers who didn’t carry a regular balance.

So far this year, companies are offering lower rates for briefer periods and with new penalties attached. Instead of offering the lower rate for five or six months, the new rates are offered for two or three months--or even fewer.

A First USA card that offers a 0% introductory rate gives some insight into the complexities of new card offerings.

A closer look reveals that the 0% rate is only available “until the first day of the billing cycle that includes 2/1/99.” If the 30-day billing cycle starts Jan. 2, for example, that is the day that the rate increases to 7.99% for purchases and balance transfers and 19.99% for cash advances.

But if a customer is even a day late with a payment, the 0% rate automatically leaps to 7.99% and the account is charged a $29 late fee. Two late payments trigger a 19.99% rate, while two missed payments result in a 22.99% rate.

The new terms can cause customer confusion.

Walt Halagarda, a data processor from Mission Viejo, thought he was getting a 5.9% rate for six months when he applied for a First USA card this summer. Halagarda said the company sent him six bills in five months and then increased his interest rate to 12.9%.

“You expect to get six months at a certain rate, and that’s what you should get,” Halagarda said.

First USA spokesman David Webster said he would investigate the situation with Halagarda, adding that he might have misunderstood the terms or he might have been mistakenly charged.

Some card issuers make it difficult to sort through their terms to begin with. Heritage Bank of Commerce, which issues NextCard, discloses interest rates, fees and other details on its Web site only after a consumer actually applies for one of the cards. The bank says it customizes card terms based on an applicant’s credit report.

A recent application showed that the card’s touted 2.9% rate, for example, was only available with a transfer of $3,000 from another card.

Consumer advocates recommend that people who carry a balance opt for a card with a low fixed rate and low fees. Consumers are also advised to read and file all the fine print their credit card issuer sends them since the fliers included in card bills are often the only warning given of drastic changes in fees and terms.