While new rules governing credit card disclosures are coming, they aren’t here yet, making the process of deciding which credit card company will get your business as complicated as ever.
This is particularly true when pondering affinity cards, a type of credit card designed to benefit a charity or particular cause at no cost to you.
There’s no doubt about it: giving money to your favorite charity, alma mater or association is important, especially when budgets are pinched by the financial crisis. But before you sign on the dotted line or click send on the online application, take a few minutes to figure out whether you or your cause are getting the best deal.
Your desire to help a favorite cause shouldn’t trump financial common sense so don’t sign up for a card with fees and interest rates higher than you could get elsewhere, or onerous terms, such as penalty rates and fees, double-cycle billing and other gotchas.
More importantly, if you’re already struggling to pay your credit card bills, adding another card, even one that will benefit a cause near and dear to your heart, is a bad idea.
With that in mind, here are six questions to ask before getting a new affinity credit card. The best way to get these questions answered is to read a copy of the terms and credit card agreement for the particular card you’re considering and/or pick up the phone and call the credit card company that issues the card.
When posing this question, you want specifics. Most credit card companies that issue these cards offer vague answers, stating that your charity will get an unspecified payment for each person that signs up for the card as well as an ongoing percentage of what you spend. You want to know the up-front payment, usually a flat dollar amount, as well as the percentage, usually 1 percent or less, that your charity will receive.
Run the numbers: Think about how much you are likely to charge on this card and multiply that by the designated percentage. If you think you’ll charge $5,000 a year and your charity gets 0.5 percent of that, it will receive $25, which is not a lot of money.
“What is so interesting about this from a consumer-behavior standpoint is that essentially what an affinity card is, whether it is a reward card or a charitable cause card, is a 1-percent-off rebate or 1-percent donation at best,” says Andy Jolls of VideoCreditScore.com, a video Web site aimed at educating consumers on credit scores. “Consumers aren’t generally impressed by a 1-percent-off sale, except for this type of credit card.”
Sometimes the amount going to the cause can be large. According to a World Wildlife Fund spokesman, as of December 2007, his organization had raised more than $10 million during its 12-year relationship with JP Morgan Chase & Co.
Still, if you can find an affinity card that tickles your fancy and is at least competitive with, if not better than, a non-affinity card, it can really pay off for you and the cause.
“It’s a way for a consumer to donate to a cause at no additional cost to them,” says Mark Levitt, senior director of creative services at CardPartner, an affinity credit card provider in New York. “It is truly supplemental revenue, found money for a cause, and it is a way for the consumer to contribute above and beyond writing a check.”
With the bank crisis and so many bank business lines under pressure, many banks are responding by raising fees on credit cards to beef up profitability. What is good for the banks isn’t good for you as a consumer, so you don’t want to hold an affinity card with a fee that will wipe out any benefit you get from rewards points or charitable donations.
Read the fine print of any affinity program not only to see if there are recurring annual fees just for the privilege of holding the card, but also what the fees are if you pay late, go over your credit limit or break some other rule. Be sure to read your statement carefully and any mailings that come from the issuer once you sign on and be alert for extra and new fees.
“All banks note that they reserve the right to change the terms at any time for any reason, so even if there are no fees when you sign on, that could change,” says Amanda Walker, senior project editor for Consumer Reports’ Money Advisor, a personal-finance newsletter.
According to Levitt, interest rates on balances, balance transfers and cash advances are another issue. While some affinity card issuers advertise rates that are only available to those with the best credit and impose higher rates on consumers who don’t have sterling credit, others have terms that apply for everyone who qualifies for a card. So when you apply, you should make sure your rates are as advertised or take your business elsewhere.
Compare rates to those of other cards in the marketplace and the cards you currently carry in your wallet. Also, think about how you spend and what rates you are likely to fall under for most of your spending. If you regularly carry a balance but never get a cash advance, the interest rate on purchases and balances is important while the cash advance rate is meaningless.
While donating to a cause by buying stuff is a great way to benefit a charity at no cost to you, you do lose the tax deduction you might get on your federal income taxes for charitable deductions by writing a check or making a direct donation, Walker says.
This is only an issue for taxpayers who itemize instead of using the standard deduction because you can only take specific charitable donations by itemizing. The Washington, D.C.-based Tax Foundation says more than 65 percent of Americans don’t itemize, and if you’re one of them, you aren’t giving up anything by choosing to donate via credit card spending. However, if you do itemize, you might be giving up a larger tax benefit, so it is something to consider.
More cards are combining rewards and charitable donations, Walker says. If you go that route, try to find a card that offers cash back rather than points.
“Cash-back programs are generally more generous than point programs and are easier to keep track of,” she says. To give your favorite cause extra bang for your spending buck, you could use your cash-back rewards check as a charitable donation which would help the charity and keep you from losing a tax deduction if you itemize.
Some consumers like the idea of carrying a card with a cause-based logo. Some affinity card issuers offer charities a choice of a number of logos that can go on a card, and those charities give their members a choice of the look of the card, Levitt says.
With the appetite of consumers up for personalized merchandise, some of CardPartner-affiliated causes and charities are offering their members the chance to completely personalize their cards, a trend that Levitt thinks will only accelerate.
“We have two Bassett Hound rescue groups in different parts of the country that have affinity cards with us, and one of them ran an online auction where the winning bidder could place a photo of their dog on the card,” he says. “They made $250, and the winner had the chance to carry a completely personalized card.”