TRUTH 1 Credit cards

It isn’t uncommon for you to receive a notice for a credit card that seems to say that you’ve been preapproved (whatever that may mean) for a credit card that may provide you with a low interest rate, a high credit limit, and an incredible rewards program. In fact, it may promise just about anything. The truth is, the preapproval letter actually is just an invitation to apply for a credit card at an interest rate that will be determined later depending on your credit report and credit history.

When you actually receive a credit card after responding to the “preapproved” application, you should make it a point to carefully read the fine print of the card holder agreement, not just the letter that comes with the card, because within the tiny print and the confusing language of the card holder agreement is found the actual terms of that particular credit card. You may find that the terms bear little resemblance to what you thought you were getting.

Unfortunately, the law still permits credit card companies to mislead people, particularly people who do not take the time to read the fine print. Failure to read the fine print in a credit card agreement can be detrimental to your financial well-being. Cigarette packages carry warnings. Credit cards probably should, too. It isn’t unusual for people to seek a new credit card with a high enough credit line to carry the balance transferred from a previous card as well as carry new purchase debt. However, sometimes people assume that they’ve gotten the credit line they applied for and use their new card for the first time only to find out that the entire credit line was used by the transferred balances, leaving them with an over-the-credit-line fee and a card that has no credit left for purchases. If you find that the terms of the credit card you receive are not what you thought you were getting, don’t activate the card. Cut it up. Or call the credit card company and try to negotiate the terms you want. If you can’t get those terms, be prepared to walk away. Don’t just not use the card. Don’t even activate it, because merely activating the card may subject you to fees and adversely affect your credit report.

Credit card fees

Fees are big business for credit card issuers. Go over your credit limit by the slightest amount, and you may be facing a penalty fee. To make matters worse, this penalty fee can be assessed on your account multiple times during the same month because many banks impose this charge whenever a charge is over your credit limit rather than at the end of the month. And, to add insult to injury, banks may approve a charge at the time it is made even though it puts the customer over his credit limit and then hit the customer with a penalty fee. The credit card issuers say that they allow you to exceed your credit limit as a “convenience” to you. And, to make things even worse, the fine print in your credit card agreement may permit the credit card issuer to raise your interest rate to a figure higher than the drinking age if you go over your spending limit.

And even if you’re completely up-to-date in your payments at all times, and even if you have a “fixed” rate credit card, the credit card company can change your interest rate whenever it desires by giving you 15 days notice of the change. A fixed rate merely means that, unlike a variable rate that automatically increases in accordance with a regular index, your fixed rate is fixed for only as long as the credit card issuer desires and can change whenever the issuer of the credit card so determines.

Universal default

You make sure you pay your credit card bill every month on time. Surely you’re at no risk of having your credit card interest rate singled out for a large penalty-triggered increase. After all, you didn’t miss a payment, and you weren’t late with a payment. Unfortunately, you’re still at risk. The fine print in some credit card agreements says that if you’re late with any payment to anyone—the telephone company, your car payment, or your rent, for example—the credit card company reserves the right to increase your interest rate to a punitive rate as high as 32 percent. Always read the fine print.

Late fees scam

If you read your monthly credit card statement carefully, you will note that your monthly payment must not only arrive by a specific day, but by a specific time within that day, such as 1:00 p.m., or your payment is considered late and you are subject to a punitive late fee. These late fees add up. Between 1995 and 2006, according to the General Accountability Office, late fees rose more than 160 percent, to an average of $33.64. About 70 percent of the more than $17 billion that the credit card issuers assessed in penalty fees in 2006 came from late fees.

A particularly irritating variation on the late fee is the Same Day Payment Fee, where your credit card issuer charges you a fee, usually about $15, for transferring money electronically from your bank to the credit card issuer. In other words, if you find that your payment has not been made in a timely fashion, leaving no time to send it through the mail, and you send it in electronically to avoid a late charge, you’re charged an “on time charge” merely because you sent the money electronically.