New credit card has so-so terms? You have choices
Your new credit card arrives, and excitedly you rip open the envelope and ...
Meh. Those terms – the high interest rate, the low credit line – they’re not nearly as good as you expected.
- Toss it in a drawer and fume?
- Cut up the card?
- Or just put it in your wallet, accepting that it’s the best deal you’re going to get?
“It’s a tough spot to be in,” says Bruce McClary, spokesman for the National Foundation for Credit Counseling.
You do have choices, perhaps more than you think. Here are your five options.
1. Ask for better terms.
The credit line is too low. Or the interest rate is too high. Or instead of that premium card with rewards, you received a mid-level card that doesn’t have the benefits you want.
“We’ve found success with consumers calling credit card [issuers] and requesting a better deal,” says Ed Mierzwinski, consumer program director for U.S. Public Interest Research Group. “It’s all a matter of negotiation, and the squeaky wheel gets the grease,” he says. CreditCards.com research has found that while few people negotiate, cardholders who do negotiate usually get a better deal.
When you call, explain what you want. A different card? A higher credit limit? Ask if the person on the other end has the authority to grant it, says Ruth Susswein, deputy director of national priorities for Consumer Action.
If not, work your way up the food chain, she recommends.“Whether you’re successful is going to depend more on your credit history than anything else.” Don’t be afraid to ask again a few days later. Someone else could just as easily say “yes.”
Another smart tactic: Without making threats, remind the card issuer that you have other options, says Susswein.
Depending on the card issuer, asking for a change in terms could lower your credit score. Some companies may use the credit score or credit history already on file. But if the issuer pulls your credit again or asks you to re-apply, that could knock a few more points off your credit score, says Can Arkali, principal scientist with FICO, the company that pioneered credit scoring.
2. Cancel the card.
You’ve called several times and asked for a better deal. You’ve even worked your way up the management ladder, and the answer is the same: You’re stuck with the terms you have. If you’re dissatisfied with those terms, you can cancel the card.
If this is your decision, quick action is best, says McClary. Move fast and you may be able to cancel it before it shows up on your credit report.
Ten percent of your score considers your accounts’ newness, so a recent account you opened then closed could hurt. The effect would be slight for people who have a lot of credit or a long history with credit. But it would have more of an impact on consumers who have few accounts or a shorter history with credit.
Be especially wary if your credit score straddles the divide between ranking categories.Ask how the account will be reported to the credit bureaus. After a few weeks, “Pull a copy of your credit file, just to see what that activity looks like,” says McClary.
If the card has an annual fee, negotiate with the card issuer to zero out any balance before it closes your account, says Arkali.
Are you ditching this card in favor of applying for something else? Your credit score will take a hit from two credit inquiries, says Arkali. But, “the impact wouldn’t really be that drastic,” he says. If you have good credit and a long history, the damage should be minimal, he says.
3. Keep the card.
If the card has features you like, “Make it work for you,” says Susswein. If it has less-than-stellar terms, be vigilant about paying on time, reading the monthly statements and never using too much of that credit line.
Whether you use it only enough to keep the account open (small purchases every few months, paid off immediately), or give it a regular slot in your wallet, the main rule is the same: Never carry a balance. Even if the APR’s high, no balance means no interest payments.
But life happens. A charge you planned to pay immediately ends up hanging around longer than anticipated. If you fear that may happen with a high-interest card, move it to the back of your wallet (or sock drawer), and use it only enough to keep the account active.
4. Find out why you didn’t get the
terms you expected.
Look for clues in the letter that came with your card. Call the company, explain what you were expecting (lower APR, higher credit line) and why (great credit, lots of card options), and ask why you received what you did.
“They may not give you any valuable information, but they might,” says Susswein. “If they do, listen to that.”
Pull your credit history and credit score, especially if you plan to apply for another card, says McClary. You’ll either confirm your good credit or discover what kept you from getting the terms you wanted the first time.
5. Don’t be afraid to complain.
This shouldn’t be your first choice. But if you feel that a card issuer isn’t granting access to the credit terms and products you’ve earned, or that you’ve been the victim of bait-and-switch marketing, regulators want to know, says Mierzwinski. So file a complaint with the Consumer Financial Protection Bureau.
See related: Script to ask for a better card deal
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