Credit card companies profit from people who don’t read

The credit card industry is an odd business. Given that they permit people to borrow thousands of dollars at a time on their signature alone, one would think that they’d be careful about whom they do business with. But they send offers to children, dogs, and even dead people. And pretty good offers, too. Every now and again, when business gets tough, some of the card issuing banks will offer Visa or Mastercard accounts that come with a temporary interest rate of zero percent. That’s right, zero. Nothing, nada, zip.

How does that work?

How it works varies from company to company. Generally, the zero percent rate is good only for a short period of time; perhaps six months to a year. Often, the rate isn’t good for charges, but is only good for balance transfers from other credit card accounts. The zero percent interest rate is designed to lure you away from whomever else you have been doing business with. They hope, by offering no interest, that you and your huge balance will come on over to their company. They also hope that you won’t pay that balance off until after the temporary rate goes away.

That rate can be far more temporary than you might think. The fine print of the terms of service will outline exactly what that zero percent rate means and under what circumstances it may be withdrawn. Usually, that means making a late payment. Making a late payment on the credit card will certainly raise the rate, but the rate may also go up if you make a late payment on any of your bills. This little quirk is known as a universal default clause. Pay the light bill late? You might see that zero percent rate shoot up to 20% or more when it comes time to pay your next bill.

And while the banks may “offer” credit cards to just about anyone, they are rather picky about who actually gets a zero-interest card. The application may say 0%, but if you apply and a credit check shows that you have a spotty financial history, you may be offered a card at a higher rate, or you might not be approved at all. Of you may get a low rate but also get a really low limit.

If you do get such a card and you transfer a balance from another account, be careful. That 0% rate may only apply to transfers and not to new charges. If that’s the case, the new charges may come in at a higher rate, and you’ll be paying interest on those purchases until after the 0% balance transfer is paid off, and interest will be accruing the entire time. 

Those occasional offers from companies offering to lend money at 0% can be tempting. And if you are careful and read (and abide by) the fine print, you can benefit tremendously from it. But the bank is betting otherwise, and the banks usually win.

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