Credit card companies are some of the most sophisticated marketers in the business world. The average household receives over 30 credit card solicitations in the mail each year. Most of these offers have attractive terms, but come with “fine print” disclaimers that consumers rarely read. Here`s a list of some of the most common things to watch for as you shop for a credit card.
No grace period
If you carry a balance from month to month, most cards provide no grace period on new purchases. This grace period normally allows new purchases to be excluded from accruing finance charges. However, the 20-25 day grace period does not apply if you don`t pay in full each month.
Tip: Pay off your balance each month to minimize your finance charges.
Shortened grace periods
Most credit card issuers offer a 25-day grace period in which to pay for new purchases without incurring finance charges. Some banks have shortened the grace period to 20 days–but only for customers who pay in full monthly.
Tip: If you pay off your balance each month, ask your credit card issuer for 25 days grace.
Minimum balance syndrome
While it may seem beneficial to have a credit card when you need to pay only 2-3% of your balance each month, the reality is by making only the minimum payment, you`re paying the maximum possible interest. The issuer stands to make far more money from finance charges the longer you carry out payments–and you foot the bill.
Tip: Pay all you can monthly.
Low intro “teaser” rates
If you sign up for a credit card with a low “teaser” rate, such as 1.9% for the first four months, when the introductory period expires, your existing balance will likely be subject to the regular and substantially higher interest rate.
Tip: Pay in full before the rate increase or close the account.
Fewer rights on debit cards
Debit cards look just like other Visa and MasterCard credit cards, but your payments are deducted directly from your checking account. Under federal law, you may not have the same right to “charge back” disputed purchases as you do with a traditional credit card. Also, if your debit card is lost or stolen, you may have unlimited liability for losses if you don`t report the problem within 60 days, which is different from the $50 maximum liability on credit cards. Since these laws vary by state, it`s important that you know what kind of card you have and the applicable law where you live.
Tip: Know your card. Is it a credit card or a debit card? They can look alike.
Negotiate your fees or switch cards
Credit card companies have hundreds of different “offers” or programs, with varying fees and interest rates. You may be paying up to $50 a year or more as an annual fee on your credit card. You may also be subject to finance charges of over 18%.
Tip: If you`re a good customer, the issuer may be willing to drop the annual fee and reduce the interest rate — you only have to ask! Otherwise, you can switch issuers to a lower- priced card.
Many banks enticed you to sign up with extra benefits such as lifetime warranty, a 5% discount on all travel, or protection if an item purchased is lost. Now, some banks have cut back on these extras without the fanfare that launched them.
Tip: Read annual disclosure of changes, and switch cards if important features have been discontinued or materially changed.
The right to setoff
If you have money on deposit at a bank, and also have your credit card with the same institution, you may have signed an agreement when you opened the deposit account which permits the bank to take those funds if you become delinquent on your credit card.
Tip: Bank at separate institutions, or avoid delinquencies.
Offers with no grace period
That fabulous offer you received in the mail for a platinum card with a $5,000 credit limit may not be so great. One common feature is the card has no grace period. You are charged interest on everything from the day you buy it, even if you pay on time.
Tip: Don`t take the offer. There are too many credit cards that offer grace periods.
Double fees on cash advances
Most credit cards impose both finance charges and a transaction fee on cash advances. Interest starts from the day of the advance, and the transaction fee can be up to 4% of the amount taken. Even if you limit cash advances to small amounts, there may be a minimum transaction fee as high as $4.00 per advance. A $4 transaction fee makes a $20 cash advance pretty expensive.
Tip: Limit cash advances.