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Credit
Card Traps and How to Avoid Them
by David Berky
"0% interest* for the
first six months, no annual fees** and a low fixed***
rate of only 8.9%****!"
* Unless you count the deferred interest we will
charge you if you don't pay off the full balance transfer
amount when the promotional period ends.
** Except the ones we charge for "late payments****",
going over your balance, cash advances, balance transfers,
membership in "rewards" programs, etc., etc., etc.
*** Fixed for the first month, but after we may
change it without notice for: late payments, going over
your balance, changes in the prime rate, or just cause
we want more of your money.
**** Rate depends on your credit score. (Which
we already checked and intend to charge you 19.8% or
we wouldn't bother sending you this great***** offer.)
***** A payment may be late if we just don't
get around to processing it in time no matter when you
actually mailed it to us.
****** May not be great in all states.
Yes, folks, "the devil is in the details" and the truth
is in the fine print.
While this is obviously an exaggerated and fictitious
example I have seen most of these "weasel" clauses in
the 100s of credit card offers I receive each year.
Some of these tricks and traps are practiced by local
and national merchants with their "store credit cards"
and "discount cards".
I have seen stores and even car dealerships make "no
interest for a year" type announcements and advertisements.
But when you actually read the contract (and who does
that - they count on you to not read the whole thing
and you probably won't understand it without your attorney)
you may find that instead of the regular payments you
would expect to start at the end of the no interest
period, you are required to pay the full purchase price.
If you want to make installment payments, you will be
required to pay the payment plus the interest (look
for the rate in the fine print) and you may also be
required to pay the interest that accrued during your
"interest free" period. Gotcha!
Or how about the "no annual fees" bit. Look out for
the contract to say "no annual fees FOR THE FIRST YEAR".
Or first two years or that a "membership" fee is required.
How that differs from an "annual fee" is beyond me.
Also watch out for the "no annual fees" for the use
of the card but "membership fee required" to participate
the in frequent flyer miles or cash back points program
(which was probably why you chose that card to begin
with). Gotcha!
And how about the "fixed" rate? Read the fine print,
it will actually say "subject to change without notice".
Is it just me or do I misunderstand the meaning of the
word "fixed"?
Also your "fixed" rate may be raised to the "maximum
allowable by state law" if you go over your credit limit
(including fees that may put you over your limit before
you even know it), make a late payment, miss a payment
or do not pay the full amount. Gotcha!
And then there is that low "teaser rate". Yes that's
what it is called in the industry and it is appropriately
descriptive. That rate is given out, they aren't lying
about that. But it is only given to the people who have
700 or above credit scores, minimal debt, and a high
paying job.
The majority of the people who are sent the ad will
not get the lowest rate. But you won't know your rate
until you apply for the card. But by the time they tell
you what rate you will be at they have already signed
you up and issued your card.
They count on the fact that most people will just accept
the rate and go from there. Gotcha!
So how can you avoid these traps?
Rule #1, read ALL of the fine print. If you are not
clear on something ask someone else what they think
it means. Ask an attorney friend, CPA (certified public
accountant), financial planner, banker or other person
in the financial industry. Chances are they will have
several questions about the fine print, too.
Rule #2, don't apply for a card unless or until they
tell you what your actual rate will be. This is hard
because most of them are not set up to tell you. Generally
you will need to know your credit scores and have a
copy of your credit report handy.
Even then you are unlikely to find someone through their
telephone maze that will or can actually answer your
question. Try to find a card that gives you a confirmed
rate before you apply. A conscientious company will
first request a copy of your credit report from one
of the credit bureaus before quoting you a rate.
Look on http://www.bankrate.com for current rates offered
by various credit card companies and banks. Often smaller
banks and companies offer better deals and are not as
strict or hard to deal with. Check with your local banks
also. At least with a locally issued credit card "you
know where they live".
Rule #3, always mail your payment at least 7 days before
it is due. Or try paying through the Internet. Many
companies now offer that payment method. It can also
save you time and stamps.
Rule #4, check your statement each month to be sure
you are still at the interest rate you signed up for.
If your rate has been increased, look for a late payment
fee, or some other reason for the increase. Call the
company and ask them why they increased your rate.
If your rate was unjustly increased (they processed
the payment late or credited it to your account late,
but it was not received late) then ask them to change
your rate back to what it should be.
Even if you did make a late payment, most companies
will reduce your rate after six months of on-time payments.
But if you don't ask, they will keep you at the higher
rate as long as they can.
In the credit card business it is definitely "caveat
emptor" or buyer beware!
************************************************************
© Simple Joe, Inc.
David Berky is president of Simple Joe, Inc. which sells
the Simple Joe's Debt Eraser PC software. Debt Eraser
can help anyone get out of debt quickly and inexpensively
by creating a Rapid Debt Reduction Plan.
This article may be freely distributed as long as the
copyright, author's information and an active link (where
possible) are included.
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