All the Ways Credit Card Companies Try to Trick You
It’s important to read the fine print on just about everything, especially credit cards. Credit card companies use some pretty tricky tricks to get you to sign up. They seduce you with tempting offers that seem legitimate, but if you miss one iota of the fine print, you’re royally screwed up. Here are some things to look out for, especially when you are applying for a new credit card.
They confuse you with 0% deferred interest
The old “deferred interest” trick is combined with the play of the “0% Introductory Annual Interest Rate” cards. In the latter case, you pay zero interest for a specified period of time, which is usually between 6 and 18 months. When your time runs out, the remaining balance will be debited at the card’s regular interest rate in the future. It’s pretty dry.
The deferred interest offer is much the same, but with one huge difference: if you do not pay off your balance after the introductory period, you will be charged retroactive interest at the standard rate. Let’s say you have a credit card with a “0% for 6 months” deferred interest. If at the end of the six month period (or any other period) you are not paid at least $ 1, you pay interest in the amount of six months – on your original balance.
You usually see deferred interest promotions associated with store credit cards. With all that said, deferred interest can work in your favor too, you just need to be extremely responsible in paying off your debt during that time frame. Most people don’t, which is why credit card companies offer this promotion in the first place.
In any case, when you open a new card and plan to have a balance with you, read the fine print about the terms of their interest. Are they giving up interest or are they just saving it? If they delay paying and you have a balance, you might be surprised to know that you will have to pay the interest later.
Decreased travel reward
We’re generally aficionados of travel hacker rewards , but these sentences are in small print, which might take you by surprise.
For example, some of them refuse promotions if you have already signed up for a similar program.
Here’s an example that consumer advocate Christopher Elliot wrote about on his blog Elliot.org :
When Joan DePalma, a retired New York City social worker, recently applied for a Delta-branded American Express card, a company representative offered her a $ 50 loan after her first purchase and 25,000 miles – enough for a “free” domestic round trip ticket.
“When I received the card, I was denied credit and bonus miles,” she says. Cause? She already had another Delta American Express card and was limited to first-time applicants. “I will cancel the card,” she says.
Other than that, there are a few other small print issues to watch out for:
- Charges that are not considered rewards : For example, fuel surcharges are often not included in bonus trips (and sometimes the law actually prohibits this, so credit cards are not entirely to blame). However, fuel surcharges can be hundreds of dollars.
- Restrictions on companion tickets . To be eligible, you sometimes have to buy the more expensive “Unlimited Economy Class” ticket, which means you have to spend more on an upgraded flight.
- No cancellations. It is often indicated in small print that if you cancel or attempt to rebook your flight, you will lose your points entirely.
Travel rewards can really pay off, just make sure you know where you are going and understand what you can actually buy your miles with.
Interest rate increase
The Credit Card (Credit Card Liability and Disclosure) Act of 2009 prohibits credit card companies from raising your rate on an existing balance. There are a few caveats to this rule, however, and credit card companies take full advantage of them. They are allowed to raise your bid in the following cases:
- Introductory Promotions : Your rate may go up if your credit card company offers a promotional rate for an introductory period only. Fair; we all know that 0% interest rate does not last forever. However, according to Credit.com, the promotion period must be at least six months.
- Variable rate cards: If you have a variable rate card (and most of them, especially after the law was passed), this means that your interest rate will change if the base rate changes .
- End of the “difficult” period : If you negotiated a lower interest rate with your credit card issuer due to difficulties, they most likely gave you a limited time frame for this reduced rate. When this time is up, they can raise your rate.
- If you are 60 days late : NerdWallet explains that after months of late payments, your issuer can impose a penalty at an annual rate that can be as high as 29.9%.
- Your credit score has dropped : If your credit gets unbearable, your credit card company may charge you a higher interest rate. The good news is they have 45 days to inform you of this increase, and if they impose it, they will have to renegotiate your loan six months later and lower your rate if you improved it.
Either way, your credit card issuer has 45 days to let you know that they are inflating your rate. If you wish, you can even refuse during this period. However, this means that you must stop using the card and pay off your existing balance within the next five years. Money under 30 suggests :
Usually, to opt out of using the card, you need to contact customer service. If you refuse:
- You can pay off your existing card balance at your current (lower) interest rate.
- After the debt is paid off or the card expires, the credit card will be closed.
If you do not unsubscribe from the mailing within the specified period, your rate will increase, and you will not be able to do anything about it after that. So if you have a balance and your credit card company notifies you of a sharp hike, you should probably opt out (unless you can fully pay off the balance immediately). It’s time to forget about any impact that credit card closings have on your credit and just get away from this nasty interest rate.
Of course, the best thing to do is to get out of debt and stop paying interest entirely. It would be an oversight if we didn’t remind you that it’s like throwing money down the toilet. If you are in the process of paying off a debt, you want your rate to be as low as possible so you can throw your money where it matters.
Interest rate increases accumulate over time, so be aware of your credit card company’s rights to raise rates and watch closely for any increase. If you make payments on time, you can close the deal with the credit card company at a lower rate.
Charging sneaky hidden fees
You probably know that you will be charged late fees if you do not pay your credit card on time; this is a no brainer. However, there are many less obvious fees charged on credit cards. While the Card Law has abolished many of these fees, there are still a few to keep in mind.
Balance transfer fees are fairly common, for example, and usually go hand in hand with 0% per annum promotions. The issuer may not charge you interest for a set period of time if you transfer your balance, but it will probably still charge you a commission. Simple Dollar’s Trent Hamm suggests :
The balance transfer fee can range from 3% to 5% of the transfer amount, while some cards may refuse it completely.
When considering subscribing to one of these tempting deals, be sure to read the fine print – even call the company for lower commission deals. It might be worth raising your starting interest rate by one or two points if you can save a lot on transfer fees, especially if your credit isn’t good enough to get a card without transfer fees.
Some cards also charge an annual fee, especially if it’s a bonus credit card. In many cases, the promotional offer will not have an annual fee, but this only applies for the first year, after which you will start paying $ 100 or so to keep the card open. Of course, some promotional credit cards pay off. Overseas transaction fees (or conversion fees) are also fairly common, and if you use your card overseas, those fees increase rapidly. However , it’s easy enough to find a card that doesn’t charge this fee.
Accrual of residual interest upon account closure
Let’s say you close your credit card, pay for it, but forget about one tiny purchase that still hasn’t been made. This can be a financial nightmare, and it has a name: residual interest. CreditCards.com explains that leftover balance can lead to huge late fees and constant interest. The longer you realize that you have an unpaid balance, the more it becomes a monster. Here’s what they offer:
The best way to avoid residual interest / finance charges is to make sure the balance is paid in full, ”said Mona Hamuli, spokeswoman for American Express. “Do not stop making payments after the account is closed. Payments must be made every month before the due date for payment until the balance is paid in full.
Also, to protect your credit rating, be sure to request an email from your card company confirming that the account was closed at your request, and not at their request. Hamouly advises that AmEx will send confirmation emails upon request of a card member within 10-12 days of the closing date.
Finally, they suggest that you also stick to your last statement so that you have proof that you paid your balance in full.
With a little regulation, credit cards aren’t as tricky as they used to be. Of course, they are still trying to lure you in with tempting and often misleading offers; that’s what they do. Ultimately, it’s up to you how to protect yourself, which means you have to understand the fine print. Knowing what specifically to look out for can help you with this.