Credit cards are the most lucrative segment of banking, and not just because of the interest charges. Everyone in the industry wants to sell you a credit card. Don't be fooled by the offers. We present a dirty dozen traps and tricks used by credit card peddlers to fill their pockets and empty yours.
here is a summary of the dirty dozen credit card traps:I, for one, have sworn never to carry another credit card. They are worse than matches and gasoline. Best to never combine the two unless you like being burned.
- The 0% APR is a marketing technique to gain new customers. It is temporary and often part of a bait and switch scheme in which you apply for the 0% APR credit card and are given a card with a much higher interest rate. Even if you do receive the 0% APR, the lender's strict terms and conditions increase the likelihood of you losing the rate before the introductory term expires.
- The default APR is the lender's highest interest rate. An increasing number of good credit customers are being charged this penalty rate, at the whim of the creditor.
- A fixed APR is a meaningless term. Credit card providers can change the interest they charge to lend you money at any time, for any reason. The fixed APR simply gives the consumer the right to be notified if the lender changes the interest rate for reasons other than those specified in the contract terms (i.e., any reason at all). A variable APR can also be changed at any time by the provider, but in addition it varies according to a national index, such as the Wall Street Journal's survey of prime interest rates among U.S. banks.
- Listing several APRs on credit card offers is a technique to confuse customers and prevent them from comparison shopping. It also makes it easier for a credit card provider to defend itself against lawsuits, since its advertising does not make a specific promise or claim to provide a certain interest rate.
- Late fees are much higher than they used to be (currently around $40 or a percentage of the loan balance), and are imposed much sooner than in the past (payment must be received before close of business on the due date). Late fees are just one of a raft of financial penalties that credit card providers are using to increase their profits
- Borrowing cash via your credit card is much more expensive than making a purchase, in terms of a higher interest rate and a cash advance fee. The cash advance loan remains on your unpaid credit card balance the longest in order to maximize the creditor's interest rate profits.
- Credit cards that have added value for the holder have annual fees, some of which are quite expensive. For the wealthy consumer, added value can mean exclusive concierge and personal shopper services; for the consumer with damaged credit it can mean obtaining and rebuilding access to credit. For those in between, added value can mean accumulated rewards such as free airline tickets. In all cases, the consumer should evaluate the annual cost of the card in relation to its value-added reward.
- Charity affinity cards are frequently a deceptive marketing technique, designed to appeal to the consumer's heart in hopes she will forget to use her head. Suspiciously, many charity credit cards do not disclose the amount that is donated to the charity, and when they do, the percentage is infinitesimal.
- Two-cycle balance computation is a method of computing finance charges that is more costlyd to the consumer than the average daily balance method. Because there is no specific number (as with an APR or a fee) listed in the credit card offer disclosures, it is easy to overlook this trap, which could be an expensive mistake for those who do not pay their credit card balances in full every month.
- Some credit card providers charge non-usage or inactivity fees. Although this is not an issue for most credit card holders, since we use our credit cards daily, it is important to be aware of in certain cases. For example, you may be trying to improve your credit score by paying off a credit card and not using it.
- Foreign transaction fees are another invention of credit card providers to diversify and increase their profit-making activities. Purchases and cash advances from foreign countries are charged a fee that is frequently 3% of the purchase price.
- Setting the minimum monthly credit card payment at a very low percentage of the loan balance is a practice that seems to be friendly to the consumer. It is not. Making low payments increases the cost of the loan and lengthens the time needed to pay off that loan.
Mea culpa review 2017. I wrote two sentences of this. Two sentences. Bargain with my old self be damned. This is fair warning. If you didn't write any of it, I don't see a reason to keep it on this blog. My apologies to the writer at Careone Credit for this bit of copy and paste. I know it isn't the first time, and it also isn't the last.
Historically there were links to Digg.com articles in most of these blog entries. Digg was an early competitor to Reddit but never as popular. It has since been sold and repurposed as a raw aggregator and a clickbait spam source. I really don't see the purpose in leaving these old bad links in the articles, so I'm pulling them out. Where possible I will reconstruct a link to the current home of the information, along with a label that actually communicates where it is the link sends you so that the next time the links break, at least a title search will be possible.
Major thanks to the Wayback Machine. Drop by and give them a contribution if you agree.
I haven't had a credit account since writing this. Not planning on ever having one again. If you don't have the money, don't spend the money.