Financial Planner
Weekend Checkup: Your Credit Cards
Have you looked at the terms of your credit cards lately? If not, it’s time to do a little review. Although credit card companies often offer attractive short-term rates, there are a host of traps that can cost the unwary. A misstep can cost you literally hundreds of dollars.
The good news is that these traps are all disclosed either in statement stuffers to existing cardholders or in solicitations to potential customers. They’re written in fine print, generally under the headings “Important Information,” “Terms and Conditions” or “Disclosures.”
Unfortunately, few consumers read these disclosures until it’s too late.
You may decide to keep a credit card even if the agreement is riddled with land mines. But you’d be wise to use the card carefully if you do. Here’s a work sheet that should help you discover and avoid the traps in your credit agreements:
Interest-rate asterisks
The low introductory rate on your card is in big print, often even on the envelope inviting you to apply. However, when that rate expires and just how high it goes when it does are noted at an asterisk somewhere deep in the cardholder agreement.
Another important rate-related asterisk: Automatic rate hikes are likely to kick in if you do one of several things, such as pay late once or twice or let your credit rating decline. Credit card lenders now typically check your credit report on a regular basis--either once a year or once every six months. If you suddenly appear to be a bigger risk--either because you’ve paid some bills late or you’ve borrowed more--they reserve the right to hike your rate unilaterally. They may also hike your rate if you go over your established credit limit.
Introductory rate:
Introductory rate expires:
Interest rate I’ll pay if I pay late once:
Interest rate I’ll pay if I pay late more than once:
Rate I pay if I exceed my credit limit:
Rate I pay if my credit rating declines:
Cash-advance rate
The interest rate on cash advances and “courtesy checks” is almost always higher than the rate charged for purchases. You know that, right? Most credit card companies also now charge a fee that’s equivalent to a percentage of the amount you’ve taken as a cash advance. These fees typically range from 2% to 5% of the advance amount.
Cash advance interest rate:
Cash advance fee:
How payments are credited
In most agreements, card issuers say they reserve the right to apply your payment as they see fit, which is usually to pay down the lowest-rate balance. In other words, the balance on your high-rate cash advance will remain outstanding as long as you have a balance on your card, while the amount you borrowed at that low introductory rate will be paid off quickly. Again, all this should be disclosed in your cardholder agreement.
Annual fee
Even if you didn’t pay an annual fee when you got the card, many agreements allow the issuer to impose one if you pay late or become a bigger credit risk by either running up your credit balances or by starting to pay debts late.
My annual fee:
Conditions under which a higher annual fee can be imposed:
Grace period
Most cards offer a grace period of between 20 and 25 days, during which no interest will be charged if you pay your balance in full. But if you pay even one day after the due date, youre charged interest for the whole month. Be prompt.
Grace period on my card: days from statement/due date.
Late payments
In addition to socking you with interest charges and penalty rates, most card issuers charge a late-payment fee that typically ranges from $15 to $30.
Late fee on my card:
Other penalties
Most credit card companies also impose over-limit fees, and some have a spectrum of ancillary penalties for those who break their rules. For instance, you cannot redeem the frequent-flier miles you earn with Capital One’s MilesOne card unless your account is in “good standing”--you arent making payments late or going over your credit limit--and your credit rating remains excellent.
My over-limit fees:
Other penalties:
