Author: Durre Qureshi
Not reading the fine print of the credit cards you use is a
sure invitation to have your blood sucked. Now a days millions
of people are using credit cards to make purchases. If you pay
for anything with a credit card, then beware that the 9%
interest rate you thought you were locked into could actually
go as high as 30%, and you might not know it until you get
slapped with the bill-retroactively.
"Penalty interest rate" and "universal default" are provisions
included by banks in their credit card offers which they claim
are necessary to offset risks. These provisions are legal as
long as issuers can say they warned you. The rates and fees in
these provisions are all out of proportion to the risks.
Issuers have used better ways in the past to protect
themselves. For example, they used to cut customers off after
they hit their credit limits, which I think was a good thing
for the user.
Now they let you keep spending so they can charge you
over-limit fees (as much as $29 per billing period) and
permanently higher rates. This can be devastating for the
budget of many users. So be careful--always read and understand
the fine print before it is too late.
Never pay your credit card bills late even by an hour as your
interest rate can be increased permanently. In May 2004,
according to the testimony by credit card issuers before the
Senate banking committee, $14.8 billion (or 11% of their
revenue) were collected on penalty rates --which averaged about
24% this year according to the Consumer Action. To make things
worse for the user the new rates can be applied retroactively
to purchases already made. Companies usually specify an exact
time by which payments must be received. If they don't specify
it, you should contact them to find out.
Be aware that even if your mortgage or other payment is late
(under the "universal default") credit card issuers can raise
your rates because you are now classified as high risk. One
bank was found charging a 35% universal default rate by
Consumer Action.
Having too many inquiries into your credit history can also
trigger universal default rate and you may be charged a fee
thus lowering your credit rating.
Credit card issuers made $7.7 billion on penalty fees in 2003.
There is no legal cap on banks' interest rates. And the Supreme
Court in 1996 prevented states from setting limits on late fees.
Legislations are underway to ban the "universal default"
interest rates based on alleged missteps with another issuer,
ensure that penalty fees match issuers' costs and ban
over-limit fees. Whether this actually happens or not time will
tell. But until then you have to be extra careful and read every
fine print because it is all in there.
About The Author: Durre Qureshi is the owner of
http://GetSolidCredit.com. Please visit
http://www.getsolidcredit.com to view a list of best credit
card offers.
