10 TRICKS CREDIT CARD COMPANIES USE
The fine print is a license to steal, rigged to trap the unwary with huge fees and rates increases. Know your enemy. Knowledge is power, and if you want to avoid getting squeezed, you should be aware of the top 10 money grabbing tricks credit card companies have up their sleeves:
1. The universal default penalties. Card issuers regularly check their customers' credit reports for late payments on any of their bills. Any late payment can be
used as an excuse to trigger a hike in your credit card's interest rate, even if you have never made a late payment to the card issuer.
2. Bait and switch card offers. Direct mail offers generally advertise the issuer's premium card at an eye popping low interest rate, while the fine print says the company can issue a more costly nonpremium card with a higher annual percentage rate if you fail to qualify for the premium card. Just because you apply for a card with a low rate doesn't mean the card that shows up in the mail actually carries that low rate.
3. Shrinking grace periods. Historically, grace periods the time during which your transactions don't accrue interest were 30 days. They now average 23 days, and some issuers have whittled the grace period to 20 days. Some cards have no grace period at all.
4. Two cycle billing. While most card issuers use the standard one month method to calculate interest charges, some use a method that calculates interest on two previous months' balances. Companies compute interest charges on your average daily balance by adding each day's balance and then dividing that total by the number of days in the billing cycle. Some do it on a monthly basis, but others use the average daily balance over the last two billing periods. If you carry a balance, this usually means that you've lost any grace period on your new purchases. Unless you pay off your balance for two months in a row, the twocycle
method will include the prior cycle's average balance in calculating your finance costs even though you paid off that cycle's balance in full. You don't face that expense
with a single cycle card.
5. Inactivity charges. Credit card companies don't make money if you don't use your cards. Keeping your card in your wallet could incur a hefty fee, as much as
$15 if you haven't swiped your card in six months, but charges may be incurred for shorter intervals.
6. Late payment fees. A recent study by Vertis, a marketing company that researches consumer credit usage and payment habits, found that 2% of all credit
card holders occasionally miss getting their credit card payment in on time. They pay dearly. The national average is $29. MBNA (one of the largest issuers of
credit cards), Bank of America and Providian are among the steepest chargers. Their latepaying customers get squeezed $39, according to Consumer Action. And there's yet another downside to paying late: a higher interest rate.
7. Overlimit fees. Exceed your credit limit by even one cent and you'll be hit with overlimit fees of $25 to $39. Cruelly, a $39 late fee can then trigger a $39 overlimit fee.
8. Balance transfer fees. It's the big tease: A rockbottom introductory rate to transfer your balance, but that tantalizing low rate may come with a steep
transaction fee, 3% to 5%, for transferring your balance to their card, which means transferring $1,000 at 4% will cost you $40.
9. Mandatory arbitration. "If there's a dispute, you may have given up your right to your day in a court of law," says attorney/author Strong. "If that's the case, youronly recourse is mandatory arbitration."
10. Payment allocation. If you're carrying a balance and use your credit card for purchases and cash advances, or you're paying off a promotional rate and then add charges beyond the promotional period, your card company will first allocate your payments to the charges that will earn it the most money. In most cases, that means it will apply your payment to the balance that has the lower rate, thereby allowing the balance with the higher rate to accumulate and compound interest.
