Doubtless you receive many offers for free credit cards every week. But is there really such a thing as a credit card you can get absolutely free?
Of course there isn’t. Often when those enticing offers come, we forget that stores, banks and credit card companies are not benevolent charities, out to make your dreams come true. They are businesses, out to make money.
However, that thought goes out the window the minute the sales clerk says, You can get 10% off your purchase if you apply for a charge card today. What the sales clerk doesn’t mention is that you will likely have to pay a huge interest rate on that purchase if you don’t pay the balance on time. You may also have to pay an annual fee.
Remember how credit cards work: The card issuer (whether a store or bank) is guaranteeing a merchant that you will pay for the item. The card issuer pays for the item. When your credit card bill comes due, you pay the card issuer back for the use of its money. If you are late, you pay quite a bit more thanks to interest, late fees and other penalties. In addition, the major credit card companies (MasterCard, Visa et al) that provide the infrastructure that allow banks and stores to issue credit cards, charge merchants for the use of that infrastructure.
A portion of the fees credit card users and merchants pay go to keep the credit card system in place of course, but a large portion is also profit for the credit card issuers and credit card companies. Those fees paid to them are what keep them in business. The more you spend using credit cards, the more profit they make.
Did you ever notice that once you sign up and are approved for a store charge card, you start to receive countless notices of the store’s sales in the mail? The store knows you have shopped there at least once and have a charge account. If you can be enticed to buy more, the store profits both in the purchase of the item and in any interest you may have to pay in the future if you are late paying your bill. It’s a chance for the store to profit twice from you — a chance that more than offsets the cost of the sales mailing.
A free credit card is therefore an oxymoron. If a credit card does not charge you a high interest rate, chances are it is getting its profit elsewhere, such as through membership fees, late fees, cash advance fees or the like. That’s why it is so important to read the fine print of all credit card offers and compare offers carefully. By accepting the offer at the sales counter, you can’t take the time to do this sufficiently.
So, remember that free credit cards don’t really exist. Pretty soon the bill will come for all those items you bought and you have to pay it promptly or really pay a price with high interest rates and other penalties.
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