-Six Things Your Credit Card Company Doesn’t Want to Tell You
GUEST POST By Josh Wilson, a Millennial who hates credit cards and all banking fees ever created. Josh is looking to be thought leader with his new blog: Family Faith Finance.
On a national level, Americans owe about $1 trillion in credit card debt. If you break up the puzzle pieces, the average American household owes somewhere around $8,377 in credit card debt according to 2016 statistics.
Before credit cards, if you couldn’t afford something, you simply didn’t get it. But, banks and credit card companies wanted to create a system for people to buy the things they need between paychecks. After a while, those needs became wants, and the downward spiral of thousands and thousands borrowed continues today.
Personally, you know the important details about the credit card in your wallet. You know the credit limit, the interest rate, and likely the rewards and benefits that a celebrity on television described to you before you applied.
But, it’s likely there are just as many things you don’t know about your credit card.
Interest Rates Can Actually Change
Somewhere in the fine print, your credit card company has hidden the fact that they can simply change your APR whenever they feel like it.
This information isn’t always a flagrant secret, but it’s certainly not in the advertisement. Sure, you’ll be notified about two weeks before the rate increases, but for those of us who disregard those frequent notifications, penalties await.
Some Late Payments Could Equal Two Penalties
It would appear that one late payment would equal one penalty, but the credit card system has created a late fee (around $35) and a penalty rate, which could come in the form of a second fee (another $35) or a raised APR (sometimes 29.99 percent).
The 2009 CARD Act tried to place limits on these increases, but most credit card holders are unaware they ever existed, unless of course they’ve been hit with the double-fee.
Double Interest In A Single Month
Another legal loophole for the credit card companies comes in the form of imposing two months’ interest on a single month of a late balance. Referred to as “double-cycling billing,” this involves the card issuer checking the average daily balance over two months and then charging you the higher interest for both, rather than equal amounts or some sort of median number.
Disappearing Grace Periods
Some cards offer a grace period for big-ticket items, but these so-called grace periods are decreasing or disappearing all together. Let’s say you bought a big screen for the big game and you expect your typical 25-day grace period to pay a portion off by the due date to hold off creditors.
But, in order to make a higher profit off of your expense, the credit card company had reduced the grace period or dropped it all together, which means you will get charged interest on every single purchase, regardless of the repayment date.
No Card Limits With A Spending Cap
It would appear that no card limit means no card limit, but adding on a spending cap can put an end to that promise. Consumers with no-limit charge cards will soon find out they actually have a revolving spending cap.
For example, let’s say you can spend $4,000 but then spend $5,000, which means you’ll be stuck with interest payments and the principle on the other $1,000. In this case, the no-limit advertisement is really a no preset limit, based on your average monthly spending habits.
Late Payments To Another Creditor Can Raise Your APR
If you have several lines of credit and you don’t pay one of those creditors, it’s possible for the others to also raise your APR. Imagine missing a small credit card payment to find out your home loan went from 3 to 25 percent. Even bookies aren’t this hostile towards their customers.
Similar to the CARD Act, the credit card company also have a system in place known as the universal default clause, which will protect them if someone becomes a credit risk. Long story short, the house always wins.
Beating Hidden Loopholes from Credit Card Companies
Like the stock market, if you don’t know the rules, you shouldn’t be playing the game. All of these secrets from the credit card company are out to protect them and create profits, but it will often be at your expense.
Next time you’re trying to decide if you really need that next big purchase, take a moment to consider the risk and then think of the debt you already have. If you can do without, it’s best to do without until you can afford it. And when it comes to credit cards, read the fine print, read it again, and only spend when you must.