Read the Fine Print for These 3 Red Flags When Applying for a Credit Card

  • Applying for the right credit card can sometimes take extra time and research in order to ensure that you don’t miss any important red flags. The following 3 red flags can help you avoid future financial headaches.
  • Look for suitable spending requirements for the 90-day incentive bonuses. Anything requiring a minimum of spending more than $5,000 to be eligible is a red flag.
  • Be on guard for very restrictive limitations and stipulations for how you are allowed to “cash in” your reward points.
  • Steer clear of credit cards that do not waive the annual fee for the first 12 months. This could also be a sign of future hidden fees.

Searching for the right credit card can be a daunting task, especially when you compare the misleading benefits with the fine print. It’s often very difficult—not to mention exhausting—to find all of the stipulations that credit card companies include for their incentives.

As you prepare to apply for your next credit card, be on the lookout for the following 3 red flags. If a credit card sounds too good to be true, it probably is. Don’t fall for the sales pitch rhetoric that is often used in credit card advertising.

Red Flag #1: Minimum Spending Requirements Are Too High

A lot of credit card companies offer bonuses or incentives for spending certain amounts of money using their cards during the first 90 days. It’s very similar to a sign-up bonus that some professionals receive when they join a company and perform well for a certain amount of time.

The pattern looks something like this: “If you spend $X during the first three months, you will receive $X in value as a reward.” Look carefully for the amount that you must spend before you are eligible for a reward. A reasonable required amount to spend is in the $3,000 to $5,000 range. If it starts to go over this threshold, pump the brakes.

Some credit card companies will entice you with a large incentive, but you’ll need to spend lucrative amounts of money before you qualify. It’s not worth getting trapped in financial quicksand if you are required to go beyond your budget just to receive the benefit. Always read the spending requirements to make sure it’s within a suitable range.

Red Flag #2: Limitations and Stipulations Are Too Frequent

No one appreciates deals or even relationships that come with strings attached. It feels cheap and dishonest. Although this is how many businesses work, you can easily avoid falling for the limitations and stipulations that accompany credit card applications.

The perks and benefits that you receive as you use your credit card for purchases will often have limited use. Yes, you may earn credit for future flights, but you can’t use your points for airfare or upgrades. They are limited to simple, inconsequential things such as inflight meals and wifi usage on the plan.

If you earn rewards by using a credit card to book hotel rooms or other accommodations, you may be limited to which locations you can use your points towards. This could require you to plan your vacation around the “benefits” of your credit card rather than on the places you actually want to visit.

Red Flag #3: Annual Fees That Aren’t Waived

Most credit card companies will waive their annual fee for the first 12 months to give you the chance to test-drive what they offer. This is a good sign of a credit card that believes in the service it provides. If you ever come across an application that doesn’t waive an annual fee for the first 6 to 12 months, it’s probably best to avoid it altogether.

Unwelcome surprises are just that—unwelcome. Being charged an unexpected amount of money when you aren’t even sure you will continue to use the card is not ideal.  It’s also an indication that other hidden fees may be present if you continue using the card. Unwaived fees could also be a sign of more complicated issues in the future.