5 Things You Don’t Know About Your Credit Cards

You may have several credit cards in your wallet and you may use them on a regular basis, but there are probably many things that you don’t know about these little plastic cards. In fact, despite the fact that credit card agreements are sent out to consumers on a regular basis, credit cards seem to remain under a shroud of mystery.  To that end, here is a look at the 5 things you might not know about your credit cards.

You might think that the credit card companies are suffering when you pay off your credit card bill at the end of each month. After all, if you pay off your balance they couldn’t possibly be making any money from finance charges, right? While this may be true, the card issuers are still making a healthy commission from all the purchases that you make on an ongoing basis. Credit card companies charge stores and merchants what’s called an interchange fee for using their card payment system, which is generally between 2-4% on every transaction made. For some merchants, this is an expensive proposition, which is why so many merchants prefer to be paid with cash or by check. Along with penalties and interest rate charges, the littany of fees that card issuers charge merchants and cardholders can be astronomical.

2) Your Finance Charges Are Not All Created Equally

While most credit cards use the Average Daily Balance method to calculate the interest that they charge you, some card issuers use a method referred to as the Two-Cycle Average Daily Balance method. With the Average Daily Balance method, your daily balances are added together and then divided by the number of days in the cycle in order to determine the amount from which to calculate your finance charges. With the Two-Cycle Average Daily Balance method, your average daily balance over the previous two billing cycles is used instead. This is a deceptive little trick used by card issuers to fanagle more money out of individuals that carry a credit card balance over from one month to the next. If you plan on carrying a card balance from month to month, make sure that the credit card that you’re using utilizes the Average Daily Balance method to calculate your interest because the Two-Cycle Average Daily Balance method will cost you more in terms of finance charges.

3) You Can Get Discounts and Even Make Money with Your Credit Cards

Most people think of credit cards in a negative light, but for those who are willing to play the credit card rewards game, you can actually get some very healthy cash back rebates with certain card offers that can add up over time. In fact, if you obtain a cash back rewards credit card (and you pay the balance off each month), you can potentially earn back several hundred dollars or more per year in discounts and cash back rebates. But the key to make these cash back cards work is to pay off the card balance each and every month. If you don’t, the finance charges that you incur will quickly eat away any of the net benefit that you receive from the cash rebates.

4) You Can Easily Get Your Interest Rate Lowered

A simple phone call to your credit card company can be all it takes to get your ongoing APR reduced. You might feel like your rate is too high or maybe you’re anticipating having to make a large purchase that might require you to briefly carry a card balance. If you have been a long time customer of a card issuer and your account is in good standing, you should ask for a rate reduction at least once a year. If you pay off your balance every month you might not be too concerned with lowering your APR, but you just never know when you’ll need that lower APR. You probably shouldn’t ask for a rate reduction if you’ve had your card for less than 6 months or if you haven’t been making your payments on time. When you call your card issuer, be sure to mention that you’re considering applying for another credit card offer that is promoting a much lower ongoing APR than you’re currently getting with them.

5) Credit Cards Are Good for More than Just Buying Stuff

Your credit card can do more for you than just make it more convenient to make a purchase. In fact, many credit cards come with other substantial perks, such as purchase protection, car rental insurance and extended warranty coverage on purchases. A great example of a little known credit card benefit is car rental insurance coverage. Most people are totally unaware that their existing auto insurance policies will provide collision and liability coverage in case of damage caused to the vehicle while in their possession (be sure to ask your insurance company specifically what is covered by your policy when renting and insuring a rental vehicle). Car rental companies try to sell you insurance coverage when you pick up your car, which most people don’t need. When using an American Express card, many of their cards have a standard benefit that provides car rental insurance coverage that will pay for the insurance deductible in the event of a claim. While the benefit won’t cover the liability, medical or collision claims that should be covered by your auto owners policy, if you use the card to rent the car, American Express will pay for the deductible, which most of the time will be either $500 or $1000. Make sure to contact your insurance company and your credit card company before making any decisions about insurance coverage. And as always, be sure to read all the terms and conditions of your card thoroughly so you can take full advantage of the extra benefits that come with carrying a credit card. 

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This entry was posted on Tuesday, May 13th, 2008 at 7:52 pm and is filed under Tips & 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.