Credit cards are an unbalanced risk. Play your cards right, and you’re a winner. Play them wrong, and you’ll owe the house money. All the rules, disclosures and fine print are set-up to help the house win. However, if you know the rules in advance, credit cards can be less of a gamble, and the cards will be stacked in your favor. Here’s a list of 5 lesser known tricks the credit card companies employ which you should be aware of.
1. 0% Rate Clawbacks
We all love 0% teaser rates. 0% balance transfers for 21 months, 0% cash advances, financing your TV at 0% for 12 months, etc… But there’s a catch. If you make one late payment, you not only lose your 0% rate, the lender may retroactively charge you the penalty rate from the first day of your loan!
So imagine you got that new sofa for $1,399 with sales financing of 0% for 12 months. You make 11 straight payments on time. You’re one day late on your last payment. You’re toast. You won’t owe 1 month’s payment with interest. The lender has the right, depending on your agreement, to charge you interest at the penalty rate, let’s say 24.99%, from months 1 through 12!
To avoid this, always set-up pre-authorized debits equivalent to the minimum monthly payment where possible. This will take away the risk of making any late payments.
2. Point Annulments
This is a lesser known trick. Some issuers will annul your accrued points/rewards if you’re delinquent on a payment. So imagine, you spend the year using one card, and you’ve finally earned enough points for your free flight. But you forget to make a payment. Boom, say bye bye to your points.
Luckily, there is a fix. Once you’ve made your payment and your account is current, you can call your issuer and ask for your points to be reinstated. Most issuers just play the heavy hand to force you to make your payment. Once made, they’re glad to give you your points back, so don’t let them vanish.
3. Penalty Rates
We all know that if we miss a payment or two, we could get hit with nasty penalty rates from 24% to 30%. But what’s worse, once you’ve made your payments and you’re current, your card issuer may maintain the penalty rates for another 6 to 12 months, until you prove worthy of the original purchase interest rate.
What some people don’t know, is that even if you make your payments on time, the issuer reserves the right to change your interest rate to the penalty rate at their discretion! They may do it because your credit score has changed, they may do it to improve their own profitability. The one good thing is, they’re required to notify you of any rate increase beforehand. The lesson, make sure to read your mail and the fine print.
4. Overlimit Fees
This one just makes no sense. Most credit cards come with a set credit limit. This limit is meant to protect you and the issuer from spending more than you want or have. However, did you know that some issuers will allow you to go over your credit limit? But when you do, they’ll charge you an over limit fee as high as $35! What’s the point of a limit, if it’s not really a limit?
So imagine you buy a bottle of milk that brings you $1 over your credit limit. You’ll automatically get dinged $35, making it the most expensive bottle of milk you’ll ever buy. To avoid reaching your limit, get set-up for mobile alerts and your issuer will send you a notification when you come within a pre-determined range of your limit.
U.S. regulations have made it harder for credit card companies to pull this off, but the practice is still used on less diligent consumers. Some countries, like Canada, have no consumer protections related to over limit fees.
5. Grace Period Cancellation
One of the true benefits of credit cards, is that if you pay down your credit card bill every month, the bank essentially lends you money for free. You typically have 21-28 days after you receive your statement to pay your credit card bill. If you do so, you won’t pay any interest.
However, if you’re late, you will lose the interest-free period on new purchases for that statement period. What most people don’t know, is that the issuer may also remove your grace period for the next 6-12 months! That means you’ll be charged credit card interest rates of 19%-21% from the time you make your purchase, even if you pay future bills on time.
If this happens to you, call your issuer, and ask them to re-instate your grace period. Kick and scream and threaten to leave if they don’t. Actually, leave and use another card if they don’t re-instate your grace period, otherwise, each purchase on your card will be a lot more expensive than the ticket price.
Hopefully shining a light on some of the tricks of the trade will make you a more informed cardholder and stack the deck in your favor once again.
Featured photo credit: Credit Cards / Sean MacEntee via flickr.com
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