Expect Credit Cards’ Late Fees to Go Up
Your grace period may be shrinking--and the resulting late fee rising.
Just as many credit card companies have toughened their stance toward payments that are just a day or two late, the U.S. Supreme Court this month ruled that card issuers can charge late fees that reflect the law of the state in which the institution--not the customer--is based.
Most of the big card issuers are in states where the sky is the limit for late-payment punishments. Expect late fees to start going up in the next few weeks. And in a related trend, the usual grace period between billing and the due date has been trimmed a few days or even a week on some cards in recent months.
With that in mind, it’s a good idea to review your credit issuer’s policies.
Experts agree that consumers make many dumb mistakes when it comes to picking and owning cards, errors that go far beyond simply carrying a balance on a high-rate card. Here are some things to watch out for:
* Late fees. There is an easy way to avoid late-payment charges: Pay your bills on time. But if you haven’t, you may be used to extended grace periods--a few days after the due date in which your check can arrive and still not be considered late. That’s not always true anymore. What’s more, credit issuers may be sneaky when notifying you of the change, changing the words on the statement from “due date” to “late if received after,” or putting it in a fine-print notice that comes sandwiched between solicitations for fake leather luggage and miracle golf balls.
California-based cards must use a sliding scale of fees, starting at $7, depending on how late the payment is. But the recent court decision makes it clear that cards issued from banks in other states--and that covers most cards--don’t have to abide by that law.
* Teaser rates. Every new card offer tries to sell you on its low current rate. This is a “teaser,” designed to bring you into the fold. The low rate will expire in three to 12 months, at which point you could pay a rate much higher than what you have today. To beat teaser rates, either get a low-rate card, bounce to a new card with a good rate when the teaser period expires or call and threaten to leave if they don’t extend the teaser for a few more months. If you have a good payment history, most credit issuers will keep extending that rate rather than risk losing you. “But you have to stay after them,” says Gerri Detweiler, author of “The Ultimate Credit Handbook,” and make sure you know when the teaser rate expires.
* Don’t be distracted by bonuses or mileage ponts. Something is only free if you don’t pay for it. With cards offering bonuses, the goodies aren’t free if you carry a balance and pay a high fee.
“You may get the cash back or the bonus for your card, but the typical rebate or frequent-flier card interest rate charges 5 points more than an ordinary low-rate card,” says Robert McKinley, who heads RAM Research Corp., a Frederick, Md., firm that follows the credit industry. “If you do the math on it, you will see that they are giving to you with one hand and ripping it back fivefold with the other.”
* Cash advances are not like purchases. Every credit issuer has its own rules about purchases, balance transfers and cash advances. Some charge a teaser rate on, say, balance transfers, but sock it to you when you hit a bank machine for cash.
The effective rate on small cash advances, including transaction fees, can sometimes be more than 100%. In addition, the interest rate clock starts ticking the moment you pull the money out of the machine, whereas you have a grace period of up to 30 days when you make a purchase and pay the balance off by the due date.
And if a card charges one rate for balance transfers and cash and another for purchases, you should know that the higher-rate transactions will stay on your bill the longest. Say you transfer $1,000 to a card offering a 5.9% rate on a transferred balance. The card charges 14% on purchases. If you buy a pizza on the card, your $20 bill not only gets the high rate, but sinks to the bottom of your debt pile: You will pay 14% on that $20 until you have paid off the entire lower-rate balance transfer.
* Shop around. Consumers tend to develop an emotional attachment to cards and don’t review new offers and upgrades because they are happy with what they have.
If you are a convenience user and pay your bills each month, you could be missing out on rebates and bonuses; if you carry a balance, you might be able to shave some points off the rate and pay it down faster. To get a list of the lowest-rate cards in the country ($4), the best secured cards and how to qualify for them ($4) and a cost-benefit analysis of rebate and frequent-flier cards ($5), write to Bankcard Holders of America, 524 Branch Drive, Salem, VA 24153. CardTrak, RAM Research’s newsletter on the best card deals, is available for $5 by writing to Box 1700, Frederick, MD 21702. The information is also available free on the company’s Web site, www.cardtrak.com. (Some of the top deals are also listed on D2 of the Sunday Business section.)
* Close accounts in writing. Card issuers send out billions of offers a year, which means they are working pretty hard to get a customer. They also work hard to keep you. A call to the issuer to close your account generally puts it on “inactive” status; if you pull the card back out for a year or two, the issuer may activate it the moment you plunk it down to pay for a purchase. Worse, those inactive accounts look bad on your credit report--it looks like you could run up a bunch of credit debt on a moment’s notice--particularly if you surf between among companies to maintain the lowest rates. When you close the account, write that the account was “closed at the customer’s request.”
Charles A. Jaffe is personal finance columnist at the Boston Globe. He can be reached by e-mail at jaffe@globe.com or at the Boston Globe, Box 2378, Boston, MA 02107-2378.
