8 Red Flags to Avoid When Choosing a Credit Card

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You’ve probably checked your mailbox and seen countless “you’re approved!” flyers from credit card companies. But if you’re wondering how to choose a credit card when you’re ready to sign up for your first one, finding the biggest, brightest, flashiest mailer is not recommended.

Before you put in your credit card application, take a look through the card’s more detailed information. Hidden inside all that small print may be factors that mean the difference between the perfect credit card and a credit card that could cost you more money than you expected.

Learning how to spot and avoid these red flags can help you learn how to choose a credit card that’s best for you.

1. Outrageous interest rates

The annual percentage rate (APR) can play a major role when it comes to holding on to your money. And if you’re not careful in selecting the right card, you could be paying huge interest fees.

For example, let’s say you use your new card to pay a $1,000 medical bill. You plan on making 10 monthly payments of $100 each plus whatever you owe in interest. If your new card’s APR is 15.90%, a $1,000 balance would cost you an additional $74.31 in interest.

However, if your interest rate is much higher, say 20.00%, interest would shoot up to $93.94 — almost a whole other monthly payment!

2. Pricey transaction fees

Banks make a huge chunk of change by “hiding” little money traps called transaction fees for the cardholder to fall into.

A transaction fee is the amount of money you pay to use your card. It may seem silly to worry about paying a dollar here or there for these things. But transaction fees can range from making a payment over the phone to talking to a customer service agent. You could even be charged for requesting a balance transfer or upping your credit limit!

3. Punishing late charges

Late payment charges on “bad” credit cards can be extremely pricey — upwards of $25 for an occasional miss. Credit cards were so notorious for charging insane late fees that there’s even the CARD Act that keeps late payment fines in check.

However, in addition to that $25 fee (or more if you slip up more than once in a 6 month period), your credit card company could raise your interest rate also as your credit score drops. Essentially, they could punish you twice for one late payment.

Check the fine print on all new cards to see what your bank may do if you fall behind.

4. Valueless membership costs

Your credit card isn’t a country club, but they may act like it.

Many credit cards charge a yearly membership fee to cover the “perks.” But if you’re like most card holders, you probably won’t use those offers or incentives enough to justify a yearly fee.

5. Worthless “rewards”

Those ads for cash back, travel miles, and bonus points for credit cards are everywhere. However, not all credit card rewards are created equal.

For example, with travel rewards cards, point values can vary wildly depending on where you want to go and what you want to do. And with cash back cards, you may struggle to remember what gets you double or triple points each month and which purchases aren’t worth any.

The other issue is with reward sign-ups. A 40,000 travel bonus point offer for signing up may come with the fine print that you have to spend $3,000 in the first 3 months of opening your card. That’s a major hassle if you’re trying to stay within budget or pay down debts.

6. High credit limits

Going after points isn’t the only way credit cards get you to spend more. As someone who is new to credit cards and may have a limited credit history, your available credit balance will probably be on the lower side for your first credit card, perhaps around $5,000.

While this may seem counterproductive, you should avoid credit cards that give you a balance that seems way too high. For many, this is only a temptation to spend more than they have by justifying that they have the credit to do it.

Definitely, be wary of high credit limits when deciding on how to choose a credit card that fits your personal financial situation.

7. Expensive foreign transaction fees

Credit cards can make great travel companions. They are less riskier than carrying cash and they often come with extra protections, such as fraud alerts. However, not every card is an ideal travel companion.

Foreign transactions fees refer to the amount of money you will pay to use your card internationally. That $10 souvenir magnet for your mom’s collection may cost an additional 30¢ thanks to foreign transaction fees, which continue to add up with multiple purchases.

If you’re a big international traveler or even planning an extended trip, this is one fee you cannot ignore.

The best way to avoid foreign transaction fees is by speaking with your credit card company directly before traveling. This helps you decide when it is worth paying for purchases with cash while you’re abroad, as well as choosing a credit card that’s the best for your trip.

8. Lousy customer service

When you’re dealing with something as important as your credit and money, the worst thing you need is a rude or unhelpful customer service agent. Especially since they are usually paid for by your interest rates, transaction fees, and membership costs.

While it’s hard to tell if a credit card will give you an A+ experience each time, be sure to read reviews on each credit card company before choosing a credit card.

If your new card has travel rewards booked through an agent or system, read up on the ease of use and access. The more you know, the better you can get a sense of how the company values your business.

Choosing a credit card that’s right for you

When it comes to your money, learning how to choose a credit card that matches your lifestyle, spending habits, and purchasing needs is essential.

Your first credit card application and overview should spell everything out, from due dates to late fees. It’s worth checking for these common red flags before signing on the dotted line — even if that means getting out the magnifying glass to read the fine print.

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1 Important Disclosures for Laurel Road.

Laurel Road Disclosures

  1. VARIABLE APR – APR is subject to increase after consummation. The variable interest rates are based on a Current Index, which is the 1-month London Interbank Offered Rate (LIBOR) (currency in US dollars), as published on The Wall Street Journal’s website. The variable interest rates and Annual Percentage Rate (APR) will increase or decrease when the 1-month LIBOR index changes.

2 Important Disclosures for SoFi.

SoFi Disclosures

  1. Student Loan RefinanceFixed rates from 3.999% APR to 7.804% APR (with AutoPay). Variable rates from 2.480% APR to 7.524% APR (with AutoPay). Interest rates on variable rate loans are capped at either 8.95% or 9.95% depending on term of loan. See APR examples and terms. Lowest variable rate of 2.480% APR assumes current 1 month LIBOR rate of 2.07% plus 0.91% margin minus 0.25% ACH discount. Not all borrowers receive the lowest rate. If approved for a loan, the fixed or variable interest rate offered will depend on your creditworthiness, and the term of the loan and other factors, and will be within the ranges of rates listed above. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. *To check the rates and terms you qualify for, SoFi conducts a soft credit inquiry. Unlike hard credit inquiries, soft credit inquiries (or soft credit pulls) do not impact your credit score. Soft credit inquiries allow SoFi to show you what rates and terms SoFi can offer you up front. After seeing your rates, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit inquiry. Hard credit inquiries (or hard credit pulls) are required for SoFi to be able to issue you a loan. In addition to requiring your explicit permission, these credit pulls may impact your credit score
  2. Terms and Conditions Apply: SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet SoFi’s underwriting requirements. Not all borrowers receive the lowest rate. To qualify for the lowest rate, you must have a responsible financial history and meet other conditions. If approved, your actual rate will be within the range of rates listed above and will depend on a variety of factors, including term of loan, a responsible financial history, years of experience, income and other factors. Rates and Terms are subject to change at anytime without notice and are subject to state restrictions. SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. Licensed by the Department of Business Oversight under the California Financing Law License No. 6054612. SoFi loans are originated by SoFi Lending Corp., NMLS # 1121636. (www.nmlsconsumeraccess.org)

3 Important Disclosures for CommonBond.

CommonBond Disclosures

  1. Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). The following table displays the estimated monthly payment, total interest, and Annual Percentage Rates (APR) for a $10,000 loan. The Annual Percentage Rate (APR) shown for each in-school loan product reflects the accruing interest, the effect of one-time capitalization of interest at the end of a deferment period, a 2% origination fee, and the applicable Repayment Plan. All loans are eligible for a 0.25% reduction in interest rate by agreeing to automatic payment withdrawals once in repayment, which is reflected in the interest rates and APRs displayed. Variable rates may increase after consummation. All variable rates are based on a 1-month LIBOR assumption of 2.08% effective July 25, 2018.

4 Important Disclosures for Citizens Bank.

Citizens Bank Disclosures

  1. Education Refinance Loan Rate DisclosureVariable rate, based on the one-month London Interbank Offered Rate (“LIBOR”) published in The Wall Street Journal on the twenty-fifth day, or the next business day, of the preceding calendar month. As of August 1, 2018, the one-month LIBOR rate is 2.07%. Variable interest rates range from 2.72%-8.17% (2.72%-8.17% APR) and will fluctuate over the term of the borrower’s loan with changes in the LIBOR rate, and will vary based on applicable terms, level of degree earned and presence of a cosigner. Fixed interest rates range from 3.50%-8.69% (3.50% – 8.69% APR) based on applicable terms, level of degree earned and presence of a cosigner. Lowest rates shown require application with a cosigner, are for eligible, creditworthy applicants with a graduate level degree, require a 5-year repayment term and include our Loyalty discount and Automatic Payment discounts of 0.25 percentage points each, as outlined in the Loyalty and Automatic Payment Discount disclosures. The maximum variable rate on the Education Refinance Loan is the greater of 21.00% or Prime Rate plus 9.00%. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change. Please note: Due to federal regulations, Citizens Bank is required to provide every potential borrower with disclosure information before they apply for a private student loan. The borrower will be presented with an Application Disclosure and an Approval Disclosure within the application process before they accept the terms and conditions of their loan.
  2. Federal Loan vs. Private Loan Benefits: Some federal student loans include unique benefits that the borrower may not receive with a private student loan, some of which we do not offer with the Education Refinance Loan. Borrowers should carefully review their current benefits, especially if they work in public service, are in the military, are currently on or considering income based repayment options or are concerned about a steady source of future income and would want to lower their payments at some time in the future. When the borrower refinances, they waive any current and potential future benefits of their federal loans and replace those with the benefits of the Education Refinance Loan. For more information about federal student loan benefits and federal loan consolidation, visit http://studentaid.ed.gov/. We also have several resources available to help the borrower make a decision at http://www.citizensbank.com/EdRefinance, including Should I Refinance My Student Loans? and our FAQs. Should I Refinance My Student Loans? includes a comparison of federal and private student loan benefits that we encourage the borrower to review.
  3. Citizens Bank Education Refinance Loan Eligibility: Eligible applicants may not be currently enrolled, must be in repayment of their existing student loan(s) and must make the minimum number of payments after leaving school. Primary borrowers must be a U.S. citizen, permanent resident or resident alien with a valid U.S. Social Security Number residing in the United States. Resident aliens must apply with a co-signer who is a U.S. citizen or permanent resident. The co-signer (if applicable) must be a U.S. citizen or permanent resident with a valid U.S. Social Security Number residing in the United States. For applicants who have not attained the age of majority in their state of residence, a co-signer will be required. Citizens Bank reserves the right to modify eligibility criteria at anytime. Interest rate ranges subject to change. Education Refinance Loans are subject to credit qualification, completion of a loan application/consumer credit agreement, verification of application information, certification of borrower’s student loan amount(s) and highest degree earned.
  4. Loyalty Discount Disclosure: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower or their co-signer (if applicable) has a qualifying account in existence with us at the time the borrower and their co-signer (if applicable) have submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, or other student loans owned by Citizens Bank, N.A. Please note, our checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI, and VT and some products may have an associated cost. This discount will be reflected in the interest rate disclosed in the Loan Approval Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan.
  5. Automatic Payment Discount Disclosure: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their student loans owned by Citizens Bank, N.A. during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. Discount is not available when payments are not due, such as during forbearance. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account three or more times within any 12-month period, the borrower will no longer be eligible for this discount.
  6. Co-signer Release: Borrowers may apply for co-signer release after making 36 consecutive on-time payments of principal and interest. For the purpose of the application for co-signer release, on-time payments are defined as payments received within 15 days of the due date. Interest only payments do not qualify. The borrower must meet certain credit and eligibility guidelines when applying for the co-signer release. Borrowers must complete an application for release and provide income verification documents as part of the review. Borrowers who use deferment or forbearance will need to make 36 consecutive on-time payments after reentering repayment to qualify for release. The borrower applying for co-signer release must be a U.S. citizen or permanent resident. If an application for co-signer release is denied, the borrower may not reapply for co-signer release until at least one year from the date the application for co-signer release was received. Terms and conditions apply.
  7. Average savings based on 18,113 actual customers who refinanced their federal and private student loans through our Education Refinance Loan between January 1, 2017 and December 31, 2017. The calculation is derived by averaging the monthly savings of Education Refinance Loan customers whose payments decreased after refinancing, which is calculated by taking the monthly student loan payments prior to refinancing minus the monthly student loan payments after refinancing. The borrower’s savings might vary based on the interest rates, balances and remaining repayment term of the loans they are seeking to refinance. The borrower’s overall repayment amount may be higher than the loans they are refinancing even if their monthly payments are lower.
2.57% – 5.87%Undergrad
& Graduate
Visit Earnest
2.80% – 6.38%1Undergrad
& Graduate
Visit Laurel Road
2.48% – 7.52%2Undergrad
& Graduate
Visit SoFi
2.47% – 7.99%Undergrad
& Graduate
Visit Lendkey
2.57% – 6.65%3Undergrad
& Graduate
Visit CommonBond
2.72% – 8.17%4Undergrad
& Graduate
Visit Citizens
Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality and will make a positive impact in your life. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print understand what you are buying, and consult a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time. Please do your homework and let us know if you have any questions or concerns.