Photo (cc) by Sean MacEntee
I’m almost certain you’ve received credit card offers in the mail with an alluring interest rate. Unfortunately, looks can be deceiving, because the lowest APRs are reserved for consumers with the highest credit scores.
This is just one of the ways that credit card companies mislead or beguile customers.
According to the Consumer Financial Protection Bureau, the CARD Act of 2009 was implemented to reform the credit card market by increasing fairness, transparency and accountability.
However, some credit card traps are still alive and well. Regardless of how they are portrayed in fluffy marketing campaigns, credit card companies are in the business of making money. Here are some other common credit card “gotchas” you want to avoid:
1. Late payments
If you thought that late payments simply come with a slap on the wrist and a $25 or $35 fee, think again.
Be on the lookout for the penalty APR, which can be invoked once you’re 60 days late making a payment. It will remain in effect on your entire balance until you’ve made six on-time payments.
2. Cash advances
You may be tempted to head on over to the ATM to grab a few dollars for a night out, but proceed with caution. Cash advances taken from credit cards are not only subject to an ATM fee, but a cash advance fee and higher APR in most instances. And often the interest starts accumulating right away, with no grace period.
And concerning the convenience checks that come in the mail, the same rules apply.
3. Balance transfers
An offer of a 0 percent interest rate on a balance transfer can reel you in, but make sure you pay off the balance before the promotional interest rate expires. Your new interest rate could be higher than the rate on the card you transferred the balance from.
Also, you may be charged a fee on the balance transfer — often 3 percent — which could offset the savings you’ll get from the 0 percent rate. (See: “Ask Stacy: Should I Take Advantage of 0 Percent Credit Card Offers?“)
4. Fixed interest rates
Even if the credit card issuer offers you a fixed rate, rather than a variable one, don’t be fooled into thinking that it will remain the same for the duration of the account.
After the first year you’ve had the card, the issuer can raise the rate on new purchases for any reason but must notify you at least 45 days prior to the increase.
5. Grace periods
Most credit cards come with grace periods, which is the period of time between the initial purchase and accrual of interest. If a card has a grace period, your bill must be mailed at least 21 days before the due date.
A grace period will benefit you only if you pay off your balance in full each month. The Consumer Financial Protection Bureau says:
For consumers who do not pay their balance in full each month, a key determinant of their cost of credit is the grace period. It is unclear whether consumers understand that once they carry a balance into a new month, interest will be assessed on the unpaid balance from the start of the prior month. Until the consumer qualifies for the grace period again, interest is assessed on all purchases from the date of purchase. It is likewise unclear whether consumers understand that even after they pay the full amount shown on their bill, they may still owe “trailing interest” for the period from the time the bill was issued until the time the payment was received.
6. Payment processing
Was your payment due at 5 p.m., but you hit the submit button at 5:01? Don’t be surprised if you are slapped with a late-payment fee and your promotional interest rate, if you had one, is taken away.
You can always call and request that an exception be made and the penalties be removed. You can also take matters into your own hands and either set payment reminders or pay in person so the payment will be applied the same day.
The good news is that late payments won’t be reported to the three major credit bureaus unless you’re 30 days past due.
7. Credit card reward programs
In some instances, the annual fee that accompanies a reward credit card may exceed the value of the rewards you can earn.
And you also must consider whether or not you will actually take advantage of the offers, especially considering the tiered systems that sometimes vary by the quarter throughout the year.
Additional drawbacks to rewards credit cards are restricted redemption options, expiration clauses, accrual limits and travel blackout dates.
8. Paper statements
If you want to receive a paper copy of your statement, you may have to cough up a little cash. Some financial institutions do not charge a fee for this service, but be sure to confirm.
Have you been caught off guard by any of these credit card traps? Let us know in the comments below or on our Facebook page.