With Halloween right around the corner, I thought it would only be fitting to look at some of the tricks or treats you might run across within the credit card industry. Unfortunately, according to the Government Accountability Office, many credit card companies are implementing more tricks than treats these days. As a wise consumer, you need to know what to look for in order to avoid those tricks from credit card companies.
First, the most important thing you can do is to be sure you understand the credit card agreement before you sign up for any new card product. This includes finding out how much you will have to pay if you make a late payment as well as what specific things can make your interest rate rise. Although you might not be happy with these fees and interest rate increases, these tricks are contractual and actually perfectly legal according to the binding agreements that the card issuers use. So, the better informed you are ahead of time, the less likely you’ll be surprised when it does happen – and the better prepared you will be in avoiding these fees entirely.
One of the most common tricks used by credit card companies is to offer a low teaser rate, disguised as a treat, essentially baiting customers into signing up. While you can take advantage of these lower rates if you use your card wisely, you need to be sure that you are well aware of when the teaser rate will change and what actions can cause the rate to increase prematurely. Remember, an introductory rate might be better than your current rate, but it could be much higher once your introductory period is complete. Don’t fall into those credit traps that will result in higher finance charges down the road.
You also need to be certain to read all of the fine print of your credit agreement, as many tricks can be found there. According to a study backed by the Government Accountability Office, much of the language included in this fine print can be confusing to consumers. Make sure you understand the fine print before applying for a credit card and, if you don’t understand the fine print, get a financial adviser to explain it to you.
One of the worse tricks used by credit card companies is the universal default policy. I have talked about this in many previous posts, but it’s worth revisiting here. With universal default, the card issuer can increase your interest rate if you fail to make your payments on time to any other institution that reports your credit history to the major credit bureaus. While many credit card companies are eliminating this policy because of a firestorm of congressional as well as public criticism, some have let this policy remain in place.