Zero percent financing on credit cards is tougher than you think
It’s not uncommon these days to receive offers for new credit cards that provide an astonishing zero percent interest rate for a set introductory period - often up to two years. Low interest rates in general have driven this surge in enticing credit offers, according to Bankrate.com. However, these deals often have more than one string attached. In the first place, not everyone who receives a zero-interest offer is going to qualify. Even if you do qualify, there are several points to keep in mind that will help you keep the interest rate and your credit score intact.
An online credit card application or an application received in the mail may promise a great rate, but the lending agency still has to put your financial numbers (credit score) through its calculations. You need to have good or excellent credit to qualify for those zero percent interest rates. To be more precise, a score of at least 725, perhaps even higher, is necessary for a credit card company to feel comfortable giving you rock-bottom rates.
Maintaining excellent credit isn’t just about your credit score, either, although it’s definitely a huge factor. Lenders can study your credit history and make educated guesses about how you manage your finances. If they think you won’t make for a good, long-term, loyal customer, then you won’t earn that zero percent introductory rate. A habitual “card hopper,” for example, will probably not get a credit card company’s most favorable terms.
As always, it pays to know the details of any credit card offer backwards and forwards. Is the zero percent good on purchases or balance transfers, or both? What happens if you miss a payment? What happens if the introductory period runs out but you still carry balance? These are just some of the questions you need to ask before signing your name to a new credit card with a low-interest deal.
Balance transfer card applications provide a way to lessen the burden of high-interest debt. However, it’s only a smart decision if you know you can pay down the debt during the introductory period. Make a plan for paying down the balance during the low-interest period, and you won’t be sorry later.
Retail credit cards are an entirely different ballgame. When you see a credit card offer for zero percent financing on a new plasma screen or stereo system, what’s really being offered is a store credit card. Typically, the store waives the interest for the course of the introductory period. However, if you still owe money at the end of the term, don’t be surprised when interest for the original amount is retroactively applied to your account. Although it sounds underhanded, it’s all there in the fine print. The lesson there is to read the fine print, and pay off retail credit early whenever possible.
We all want something for nothing, or next to nothing, which is what makes zero APR financing offers on credit cards so attractive. Don’t be so distracted that you forget to read and understand all of the terms - especially the fine print. Deals like zero percent financing often have harsh penalties when you miss a payment, for example. Average credit card applications give you all the information you need, as long as you take the time to learn what you’re getting.