Credit Cards – Special Promotion Credit Cards, Credit and Charge Cards, Debit and Prepaid Cards

special-offers

Recently, I received the following email comment from a potential client. She had, among other things, this to say on the subject of a Special Promotional Charge Card: “Just an FYI. I had my credit pulled by Chase about 6 weeks ago, and got a shock. My scores had dropped anywhere from 75 to 100 points. It turns out that I got dinged by [XYZ] Company earlier this year. I bought a new cell phone from then in January. They said if I opened a charge account with them, I could get a discount on accessories I needed for the phone. [XYZ] opened the account, then failed to send me a statement until the 3rd billing cycle, and when I got the 3rd one, I paid the $30 + $20 in fees immediately and asked them to send me the first two statements. I thought that was the end of it, but apparently they then reported me to the Credit [Reporting] Agencies.

She protested the lack of statements and was able to get her credit reports corrected but it caused her great inconvenience as well as lost time and may have cost her the opportunity to obtain an improved mortgage credit rating and a lower housing payment. In retrospect, it appears those were pretty expensive cell phone accessories. The problem with this situation was not the promotional credit card, it was the 30 day late payment.

Should one take advantage of promotional charge or credit card offers?

As with nearly all business decisions, there is a risk -v- reward evaluation needed.  Keep in mind that opening new accounts can indicate increased risk to lenders and can hurt your credit score. Everyone’s situation is unique, but as a general rule, you should only apply for credit when you need it. Should you go on a shopping spree, and take advantage of all special credit card offers during that spree, one should expect to get reduced credit scores. This is part of the risk. So the question is: was the special  promotional reward worth it?

What’s the difference between charge and credit cards?

It is important to know the difference between a charge card and a credit card.  The Federal Reserve offers this brochure explaining the difference. In short, a charge card is payable in full on receipt of the monthly bill and most charge cards have no limit. A credit card  may have a high balance limit and can carry a balance at interest with certain minimal payments. On this, it will be helpful to review the ‘new’ rules governing how a balance on a credit card must be treated by the creditor.

What is a private label (store) credit card? 

The largest provider of store credit cards is General Electric Consumer Finance. A historic example of a GE store credit card is J.C. Penny. This particular private label credit card will display on a credit report as GE/JCP or GEMB/JCP. There are similar cards offered by many retailers from a variety of banks.

What is a pre-paid credit card?

First one needs understand that a pre-paid credit card is not a credit card; it’s actually a stored value card. In 2012, nearly 12 million consumers loaded more than $64 billion onto pre-paid cards. The main reason some consumers to this is they want to avoid going into debt. Pre-paid cards help folks with this goal because when the money stored on the card is gone, it gone. To be clear, the pre-paid issuer of the card does not report the  payment history to the credit reporting agencies.

What is an affinity credit card?

An affinity credit card is offered by an organization that the user recognizes and supports such as a travel club, alumni, university, social club, airline or other entity.

Image attribution

Financially Speaking™ James Spray, CCMB, CNE, FICO Pro
CO LMO 100008715 | NMLS 257365 | November 3, 2011 | Updated April 3, 2014

Notice: The information on this blog is opinion and information. While I have made every effort to link accurate and complete information, I cannot guarantee it is correct. Please seek legal assistance to make certain your legal interpretation and decisions are correct. This information is not legal advice and is for guidance only. You may use this information in whole and not in part providing you give full attribution to James Spray.

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