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Sneaky Credit Card Company Tactics and How to Avoid Them
In a perfect world, credit card companies would be honest and upfront. There would be no surprise charges, fine print in the terms and conditions, or sneaky tactics designed to get every possible dime from the consumer. However, the reality is that many credit card companies may be less than forthcoming about charges, rates, policies, practices, and fees. Here are some of the more common, somewhat underhanded tactics that many credit card companies use and how you can learn to recognize and avoid them.
Tactic #1: Payments are applied to lower rate debt first.
How it works: Most credit cards charge much higher interest rates on cash advances than on purchases. For example, while the purchase interest rate might be 5%, the cash advance rate is often over 20%. So, let’s say you take out a cash advance of $300 and you have a balance of $500 in purchases on your credit card. You want to avoid paying those excessive interest rates, so you make a payment two days later of $400. That should help you avoid huge charges. Wrong! That $400, the entire amount, will usually be put towards the lower rate debt, so you’re still being charged the higher rate on the full cash advance amount.
Why it’s sneaky: It would be reasonable to assume that payments made would be distributed evenly between the two types of charges. Putting the entire payment towards the balance that is associated with the lower interest rate is done in order to charge the consumer as much interest as possible, and it’s also pretty sneaky.
How to avoid it: The best advice is not to use your card for cash advances. If you must, however, consider using one card just for advances, and make the payment as soon as possible. In this way, you’ll be sure that your entire payment is being put towards that high interest balance.
Tactic #2: Minimum monthly payments are very low.
How it works: You have a substantial balance on your credit card, and you’re worried about how much you will be required to pay at the end of the month. When your statement arrives in the mail, however, you are pleasantly surprised at the low minimum payment. Apparently, things aren’t as bad as you thought.
Why it’s sneaky: Low minimum payments aren’t a favor for the cardholder; they’re a tactic to allow the credit card companies to make the customer pay as much interest as possible. A consumer who makes minimum payments every month will probably find the balance almost impossible to pay off. Why? Most minimum payments will be used mainly to pay off the interest, and a miniscule amount will go towards the principal. It’s an underhanded tactic because it gives the consumer a false sense of security about their debt and their ability to repay it.
How to avoid it: Like many problems, the simplest solution is often the best. Always pay off your balance in full each month. If your balance is too high for this to be realistic, try to pay as much as possible. Remitting minimum payments in the hopes of eliminating credit card debt usually proves to be a futile strategy.
Tactic #3: Low interest rates…or not.
How it works: You apply for a card that advertises a reasonable purchase APR of 5%. You get approved and receive the card in the mail. You use it to buy clothing and groceries, but when the statement arrives, you find you are being charged an interest rate of 10%. The company must have made a mistake. You’ll just call them and get it straightened out. When you speak to a representative, you’re told that your credit score wasn’t high enough to qualify you for the lowest rate.
Why it’s sneaky: Many cards advertise low APRs, but look for the fine print. It will often tell you that the APR is variable, and is calculated based on the applicant’s credit history. Often, the consumer has no idea that they are being charged a higher interest rate until they get their statement. This is probably the most underhanded tactic of all.
How to avoid it: First, read the terms and conditions in their entirety before you even apply for the card. When you receive your credit card, call the company before you use it. Ask them to disclose exactly what your interest rate will be. They can’t withhold this information from you; they just avoid providing it upfront if they can.
Tactic #4: Statements are mailed and grace periods are short.
How it works: Many credit card companies still distribute statements and accept payments by mail. This sneaky tactic usually goes something like this: The statement is mailed on the 15th. You might not receive it until four, five, or even six days later. You send a payment very promptly, only four days after you receive the statement. It takes several days to reach them, and perhaps another few for them to process the payment. Thankfully, this card has a grace period that allows you to avoid interest charges if you make payments on time. However, the grace period is only 15 days. You’re stuck with some hefty interest charges.
Why it’s sneaky: Credit card companies know that delivery times for mail can vary. They also realize that most consumers will not submit a payment on the very same day they receive their bill. So, by having an extremely short grace period, they can ensure they will be able to charge interest on most balances. Even responsible consumers may fall victim to this.
How to avoid it: One way is to choose a company that offers a longer grace period, but perhaps a better way is to choose one that offers online bill payment options. You can probably transfer funds from your bank account instantly to pay the balance, so you can rest assured that mail or payment processing delays will not result in unexpected (and often unfair) charges.
About the Author:
Paul Basco Provides Expert opinions and reviews to help you Compare and Apply for a Credit Card Offers online. At GettintingaCreditCard.com, we offer credit cards for bad credit, low apr credit cards, instant approval credit cards and much more.
This article may be reprinted in accordance with the GettingaCreditCard.com Reprint Requirements
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