Credit Cards and Their Current Dirty Little Secrets

In July 2010, new rules will be placed on the credit card industry that will severely change how the industry currently operates.  Until then though, I bet there are a number of “dirty little secrets” your credit card companies have been keeping from you.  Here are a few that you  maybe weren’t aware of:

Universal Default:  Have you ever noticed an increase on your credit card interest and wondered why it happened? After all, you’ve been paying your credit card bill on time, month after month!  The truth is, many cards participate in universal default – which means if you are late on a phone bill, mortgage payment, or a different credit card, the company can raise your interest rate.  You’re seen as a bigger risk if you send in a late payment, as it means you have more debt than you can afford to pay.  (So what do they do? They make it even harder for you to pay by raising your interest rates!)  Lenders have a right to view your credit score and report whenever they want, in order to determine if you have become a riskier borrower or not.

Minimum Day Notice:  Can any industry change the price of something you’ve purchased after the sale has been made?  In other words, can Walmart call you up to let you know the mp3 player you purchased last week is now 6% more expensive, and require that you pay the extra money on last weeks’ purchase?  Of course not!  But credit card companies can do this whenever they want, thanks to the little clause found in almost every credit card agreement regarding changing your interest rate: “at any time, for any reason, as long as the holder is given 15 days’ notice.”

No Maximum Interest Fee:  Have you ever noticed that most credit card companies have offices in South Dakota or Delaware? (Check the return address on your credit card statements.)  Sometime in the 1980’s, both South Dakota and Delaware eliminated the cap for maximum allowable interest rates, which means there is no limit to how high a credit card company operating in those states raise your credit card interest rates.

No Maximum Limit for Fees:  In 1996, the U.S. Supreme Court lifted restrictions for late penalty fees.  There are no maximum limits a credit card company must abide by for charging late fees – even if your payment comes in one day, or even one hour, late.  A late fee that puts your account over the limit can trigger an over-limit fee, which just continues the downward spiral for the consumer.

The credit card industry also has it’s own set of terms for describing the various ways people use credit cards.  Which category do you fall under?

Deadbeats: When you think of the term “deadbeat” you might think of a parent who runs off and isn’t taking responsibility for supporting their family.  In the credit card industry, a deadbeat is someone who pays their credit card balance off in full every month and therefore doesn’t pay interest to the credit card issuer.

Revolvers:  If you are a revolver, you pay the minimum amount due (or less) each month, and are the idea customer for the credit card industry because they earn the most interest off your purchases and also gain from late fees or over-the-limit fees.

Rate Surfers:  These people have more than one credit card that they used depending on the terms of the card and what they’re buying at the time.

Gamers:  Gamers have learned how to use balance transfer offers to their advantage.  They are not loyal to any single credit card lender or issuer.  Instead, if a lower interest rate is offered on another card, they will apply and transfer their balance to the new card.  Some people do this regularly, just to keep lower interest rates rather than paying their balances off in full.

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This entry was posted on Saturday, February 28th, 2009 at 3:12 am and is filed under Choosing a Credit Card, Credit Knowledgebase, Financial Advice. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.