Filed under: Banking, Personal Finance, Credit Cards, Consumer Issues, Financial Education
If you think about it, you've got a close, intimate relationship with your credit card. The both of you have been inseparable through each daily transaction. You treat it right by paying off your monthly balance on time. You know all your card's important details, such as its credit limit and interest rate, right down to memorizing every reward and benefit. You might even know your card number by heart. Unfortunately, there's some bad news that could be financially heartbreaking:
Your credit card company may be holding out on you.
The fact is, you've been kept in the dark about several secrets because your financial benefit comes at your card issuer's financial loss. Read on to find out some of the things your carrier doesn't want you to know.
1. Fixed rates aren't really fixed. Issuers can raise your APR whenever they choose. This information isn't necessarily a blatant secret, but it'll be hidden so deeply in the fine print of your cardholder's agreement that card companies are hoping you miss it. Commonly, we're enticed to sign on with a fixed introductory interest rate that may change at the company's will. You have the right to be notified 15 days before a potential rate increase, but to stay on top of them, check your mail; you'll receive notifications in a thin, discreet white envelope.
2. One late payment ... two penalties. In a perfect world, one late payment equals one penalty fee; on-time payments equal zero fees. In this imperfect world, you can be penalized with two surcharges on one delinquency, and you won't know about them until you've been charged. These can come in the form of a late fee (up to $35), and a penalty rate -- a permanent interest increase that can jack up your APR to as high as 29.99 percent! The 2009 CARD Act sought to place limits on these increases, though the details aren't widely known by the average cardholder.
3. Twice the interest in one month. Another one-two financial punch comes in the form of a legal maneuver which allows your card company to impose two months' interest for just one month of late balance payments. For example: You're charged twice the interest for a partial balance payment in October even though you paid on time in September. Called double-cycle billing, the card issuer looks at your average daily balance over two consecutive months and charges you higher interest based on the month you carried a higher balance. It's not even the interest that makes this a problem, but the principle of being punished for good financial behavior.
4. Disgraceful grace periods. How many of us who've made big-ticket purchases have been thankful for the grace period? Say you charge $1,000 to your card and pay $250 by the due date to hold over your creditors. Most cards carry grace periods up to about 25 days, allowing you to pay off the remainder, interest-free. But in the spirit of profiteering, many providers are reducing the grace period to just 20 days, while some are doing away with them altogether. That means you'll get charged interest on every purchases, even with timely repayments. Avoid this fall from credit grace, and check how many grace period days your card company offers.
5. No card limits -- just with limits. Many consumers in possession of a no-limit charge card discover they have a revolving spending cap -- let's use $5,000 -- but only learn of it after racking up $7,000 in purchases, leaving them stuck with a remaining $2,000, plus interest, to pay off. Why is this so? Your card company advertised your plastic as no limits, but it's really set at a no preset limit, based on your own month-to-month spending behavior and habits. Before snatching up a no-limit card, ask your provider if the limit is predetermined, and be careful not to spend beyond that amount.
6. Minimum payments to the maximum. It's the nature of the credit beast: The longer you stay in debt, the more interest credit card companies can charge, and the more money they make. In the past, card holders had a 5 percent minimum monthly payment. This became problematic for creditors because people were motivated to pay off their balances more quickly. So they lowered the monthly minimum to 2 percent. But now, with smaller repayment requirements, we're prone to spend more and accrue more debt each month. Experts maintain that this move by card companies adds thousands of dollars in interest, creating a repayment schedule that could last years, if not decades.
7. Late payments to any creditor can raise your APR. We hope that our creditors aren't wishing us to slip up on our repayments, but if there's one thing to take away from this article, it's to be on time paying down your debt. One late or partial payment, be it your credit card, car or mortgage payment, can jack up your total APR across each line of credit in your name. Can you imagine your auto or home loan going from 3 percent to 29 percent? Just like we've got the CARD Act, creditors have something called the universal default clause, which insures them against people who pose a credit risk. (Not like they need it.)
Paul Sisolak writes for GoBankingRates.com, a source for the interest rates on savings accounts, CDs, mortgages, auto loans and more.