Is a Zero Interest Credit Card Right for You?
Although a 0 APR credit card might be tempting, these cards are usually best for consumers with specific credit needs. Follow our flow chart to see if your needs align with a zero interest credit card.
Are you about to spend a lot of money at once, such as paying for a major vacation or a new car, or do you need to pay off a major debt, like a medical bill or roof repair?
Can you pay off the debt within the interest-free introductory period?
Are you having trouble paying off your current credit card due to a very high interest rate?
Do you have good credit?
Can you avoid making any new purchases with the zero-interest card?
A zero interest credit card might be for you
A zero interest credit card may not be for you
Two Scenarios Where You Might Want a Zero-Interest Credit Card
In both scenarios, your credit score may also play a role. See the following section on “How to Get a 0 APR Credit Card” to find out more about how your credit score can affect your chances of being approved for an interest-free credit card.
Zero Interest Credit Cards: What’s the Catch?
You may be suspicious of such an attractive offer, and you’re right to be. While some zero interest credit card offers really are worth taking advantage of, others feature major drawbacks.
Here are some things to watch out for, so you can sort the good offers from the bad:
|THE CATCH||HOW TO AVOID IT|
A high APR after the introductory period
Find out what the interest rate will be after the zero-interest period ends. Rates may be as high as 25–29%. Find out, too, if the go-to rate is based on your credit score: If so, rates could range from decent to outrageous.
Don’t just assume your rate will be at the lower end of this range. Talk to your bank or credit union about what you can realistically expect.
Limits to the 0% APR during the introductory period
Some offers emphasize the 0% APR they offer on purchases during an introductory period but play down the fact that the 0% doesn’t, for example, apply to debt incurred on that card after a balance transfer. Card owners also may wind up paying a fee for a balance transfer as well as interest on the transferred funds. Other “gotchas” may include high APRs for any cash advances or penalties for exceeding your credit limit and missing payments for 60 days or more.
Penalty APRs are notoriously high, and even though the CARD Act limits the circumstances under which banks can make consumers pay, the best way to avoid incurring these fees is to make all payments on time and not exceed your funds.
High stakes sign-up bonus offers
Your card issuer may advertise an attractive signup bonus, although it may include caveats such as being eligible for the bonus offer only when you spend a certain amount of money within a limited time period, such as 60 or 90 days.
Make sure that you inspect the terms before you sign up, and be sure that you can meet them. Card owners may hastily spend a lot of money to qualify for the bonus offer, then get stuck not being able to pay off the quickly accumulated debt within the zero-interest period.
How to Get a 0 APR Credit Card
An interest-free credit card isn’t for everyone, and not everyone is automatically approved for this type of credit card. Credit card issuers usually are looking for consumers they know will pay off debt. Here are some steps you can take to apply for and decide on an interest-free card:
Applying for Zero Interest Credit Cards in 4 Steps
Receiving a zero-interest credit card offer in the mail doesn’t necessarily mean you’ll qualify for that card. Your current FICO score will help the credit card company determine whether you’re eligible. Good to excellent credit is usually required for zero-interest credit cards — in FICO scores, this translates to 690 and up. That said, there are zero-interest credit cards, albeit fewer of them, for consumers with fair credit (FICO scores of 600–689).
Not only should you shop with an awareness of your own credit eligibility, but you should shop for a zero-interest card with an idea of your priorities in mind. What is most important to you in a new card, apart from the introductory 0% interest rate? Will this card serve a single purpose (like enabling you to take an expensive trip or pay down a balance) or will you continue to use it, and what will you use it for most? Answer these questions for yourself first, then look for a card that meets your needs. You can use our credit card comparison tool to compare the features that are important to you.
Once you’ve narrowed down some potential cards, make sure to ask each bank or credit card company the following basic questions:
How long is the 0% introductory period?
What are the conditions under which the introductory
0% APR can be suspended?
What is the go-to APR? Does it depend on your credit
Does the 0 interest rate apply to all debt incurred or
Is there an annual fee?
If interest is applied to a transferred balance, is the rate dependent on the size of the balance?
Once you’ve applied and been accepted for a card, don’t take the offer immediately. Write down the information you’ve gathered and the name of the person you spoke with, and explain that you need to think the offer over. If you do choose to accept the offer, consider going back to the bank or company and asking them to improve the terms. You might ask them to waive the balance transfer fee or the annual fee (if there is one) for year one or two.
Students & Zero Interest Credit Cards: An Expert’s Take
Students can be especially vulnerable to the risks of using a zero interest credit card.
Beverly Harzog, a nationally recognized credit card expert, consumer advocate and award-winning author, offers the following advice for students:
Should students get a zero-interest credit card?
If a student understands how credit cards work, then it’s fine to get a card with a 0% intro rate on purchases. But they really need to know the details. These 0% offers are intro rates, so they are only valid for a length of time, such as 12 months. Be sure you know the what the go-to rate will be.
What red flags should students look for when applying for a zero-interest credit card? What terms or conditions may be problematic?
Young adults can end up in debt if they don’t know how this works. They can charge items during the intro period and not pay interest, but when the go-to rate kicks in, the new rate will apply to the credit card balance. So students need to be sure they don’t charge more than they can pay off each month.
What other features, such as rewards or money management tools, should a student consider when applying for a zero-interest credit card?
This varies by issuer, but with many cards you get a monthly credit score with your statement. This is a great way for students to make the connection between using a card responsibly and seeing your score go up.
Read all the information that comes with your card. Yes, it’s dull! But you need to know exactly what your card offers so you can take advantage of it. If you have a rewards card, know the program inside and out. And don’t get a card with an annual fee unless you know (for sure) that your rewards will outweigh the cost.
What best practices should students use if they have a zero-interest credit card?
Have a budget and track your credit card spending. Be sure you don’t have to carry a balance when the intro period ends. This can lead to debt pretty quickly.
What advice do you have for students when the zero-interest period on a credit card expires?
Hopefully, you have a budget in place and you’re tracking your spending. The only difference now is that if you carry a balance, you’ll pay interest on it. Don’t let this happen! Compound interest will make your balance grow and you’ll pay more than you ever intended for your purchases. Focus on keeping your balance below 30% of your credit limit and then paying the bill in full by the due date.
How can responsible usage of a zero-interest credit card benefit students over the long term?
Using a credit card responsibly will help students establish a good history. This is important because your payment history makes up 35% of your FICO score. With a great credit score, you end up paying less for car insurance and health insurance premiums. When you’re ready to buy a home, you’ll be able to get a low rate on your mortgage. This leads to lower monthly payments. And these days, having a solid credit history when you graduate is helpful because many employers are now looking at the credit reports of job applicants.
Problem with a Credit Card Company?
The Consumer Financial Protection Bureau (CFPB) knows that credit card companies sometimes try to get the best of consumers by advertising special promotional offers with traps for the unwary. If you run into a problem with a credit card company, call the CFPB at 855-411-2372 or submit a complaint online.