Top 10 Credit Card Traps

[frugalnoggin]

Thanks to Consumers Union (the Consumers Reports people) for this list of traps that cause your credit card bill to not behave the way you expect.

1. Universal Default - You’re late with any bill and the credit card company raises your rate. You don’t have to be late with their bill – any bill will do. The default rate is usually quite high – like 30% or more.
2. Change of terms – The issuer can change the terms at any time, and those little notices they stuff in with the bill with lots of little print may seem so meaningless and easy to lose.
3. Teaser rates – the low rate your card had when you signed up may expire. Maybe it lasted for 6 months, maybe 12, but what happens after that?
4. Minimum payment – yeah right. If you pay the minimum you can avoid the late payment fee, but you’ll be paying finance charges forever. You may never be able to actually pay off the balance if all you pay is the minimum payment.
5. On time payment – you may mail the check before the due date, but the issuer has a strict time on when they have to receive it in order to be counted as “on time”. If the “check is in the mail” they might still count is as late. A quick phone call to the issuer might work to reverse the charge if this is not a regular practice for you.
6. Double cycle billing – you need to pay off the balance in 2 billing cycles in order to avoid interest. Three of the 6 largest credit card issuers use this method.
7. Cash advance / Convenience checks – the interest rate on these items is higher than using your card. Avoid doing this! Ask your bank to stop sending convenience checks.
8. Penalty interest rates – late payments can trigger penalty rates driving your rate from 7% to 30%
9. Fees…. – there’s a fee for everything – pay-by-phone, foreign country transactions, ATM fees, statement fees, you name it. If the issuer can get away with charging a fee, they will.
10. Balance Transfer – the lowest interest rate balance gets paid first, so if you transfer a balance and continue to use the card, the lower interest balance will get paid first.

[Mike75]

I hate the universal defaul clause. Even a single delay in payment raises the interest rate for no reason! What devil's representative thought of this clause?

[disneysteve]

Much of this stuff has been eliminated by the new regulations. This must be an old list that was copied from somewhere.

[JoshuaHeckathorn]

The CARD Act takes effect next Tuesday, the 22nd, so you can at least say goodbye to Universal default, Double-cycle billing, and the allocation of payments to the balance with the lowest interest rate. Those are 3 biggies that stand out from the list below.

And as Disneysteve said, quite a few of the other complaints have either been eliminated or tweaked to make the rules more consumer friendly. For example, penalty interest rates can still be charged when you're late on your monthly payment, but you have to be 60 days late now. Then, after you make 6-months of on-time payments, the credit issuer needs to restore the interest rate to the previous lower level.

There are certainly still traps to watch out for, but this list is definitely out of date.

[GREENBACK]

It's pretty simple. Don't carry a balance if you can possibly help it and none of these rules will apply.

[disneysteve]

Originally Posted by GREENBACK

It's pretty simple. Don't carry a balance if you can possibly help it and none of these rules will apply.

I agree. I think that every time I hear people complaining about all of the problems with credit cards. Pay your bill in full every month and pay it on time and none of this stuff will ever apply to you. I honestly have no idea what the interest rates are on our credit cards. It simply doesn't matter if it is 1%, 10% or 100%.

[JoshuaHeckathorn]

@Greenback Unfortunately, those of us who understand and live by that simple principle aren't in the majority yet. According to the Fed's most recent survey of consumer finances, about 60% of families with a credit card still carry a balance. So, I guess we still have a lot of work ahead of us.

Also, changes in account terms, like reductions in credit limits, still hurt those of us who never carry balances and don't really care what our interest rates are. I have perfect credit, and I even had one of my Citi cards closed down last year on me without prior notice...arrrggghh. Of course, the CARD Act doesn't address either of these issues.

[wincrasher]

Same as Steve, I don't really know what all my interest rates are. But it is something to think about and consider though.

In this economy, I'd be reluctant to dip into my EF for an "emergency" and would rather charge it and pay it down over several months and hang on to my cash. But you'll pay a boatload of interest that way.