EIGHT THINGS A CREDIT CARD USER SHOULD KNOW
While channel surfing last night, I came across a fascinating episode of FRONTLINE on PBS entitled "The Secret History Of The Credit Card." It basically breaks down how the credit card companies hustle consumers in what basically amounts to loan sharking via suddenly changing rates, misleading 0% offers and outrageously expensive late fees. You owe it to yourself to try and catch this show. It’s got a nice, objective, broad cross section of politicians, regulators, professors and consumers opinions.
One thing is clear, if you have credit cards and use them regularly, while making only minimum payments, you’re getting hustled in some way, shape or form and the government and regulators are in their corner, not yours!
Here are some tips from the show that can help you keep more of your hard earned cash:
Even if you make your credit card payments on time, the credit card bank can raise your interest rate automatically if you’re late on payments elsewhere — such as on another credit card or on a phone, car, or house payment — or simply because the bank feels you have taken on too much debt.
This practice is called the "universal default" clause and increasingly is becoming a standard clause in credit card agreements. According to credit card executives, the logic behind universal default is that the bank is not being unreasonable in raising rates when it has reason to believe that the risk of being repaid by the customer has increased. [Note: Credit card banks can now easily track your everyday financial activities and monitor your credit score — see below.]
Your credit score — known as a FICO score — has become a vital statistic for many Americans and can be widely shared. It is used to determine how much you can borrow, how much you pay for life insurance, if you can rent a home, and, as already noted, it can be a factor in determining the interest rate you pay on a credit card.
Most Americans don’t know what their credit score is, nor how it’s computed and with whom it’s shared. Your credit score is usually determined by five factors, with the most important being the amount you currently owe and your payment history on large debts. (Find out much more about your credit score and how it’s tracked, by reading: Credit Scores – What Your Should Know About Your Own.)
There is no limit on the amount a credit card company can charge a cardholder for being even an hour late with a payment.
In 1996, the U.S. Supreme Court in Smiley vs. Citibank lifted the existing restrictions on late penalty fees. Back then, fees ran to $5 or $10, and usually did not exceed $15. After the Court’s decision, fees soared, reaching upwards of $30. Since then, the amount of revenue the companies generate from fees (including late charges, over-the-limit fees, and charges for returned checks) has doubled. Duncan MacDonald, one of the lawyers who worked on the Smiley case, predicts penalty fees could rise to $50 in another year.
It’s important to read the fine print on your credit card agreement.
Not many people do, however. Even credit card executives and consumer advocates admitted to FRONTLINE that the last time they read their own contracts was years ago and the credit card agreement is difficult to understand. Tucked into the fine print that people so often ignore is a clause that allows the company to change your interest rate (APR) at any time, for any reason, as long as they give you 15 days’ notice. (So, Read the Fine Print.)
For the rest of the tips visit: www.pbs.org