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!

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