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Credit Traps Snag Consumers
Nearly 20 years ago I worked for a small consumer advocacy
organization in Washington, DC. Each week we received sacks full
of mail from consumers across the country requesting our list of
credit cards with low interest rates and no annual fees. If you
wanted a low interest rate on a credit card back then, you often
had to apply to a bank in Arkansas where interest rates were
capped by state law.
Those were the good old days.
Now, interest rates range from zero percent to a high 39
percent. It's tougher to find (and keep) a good credit card than
ever before. That's because there are many new traps that can
snag unsuspecting consumers.
At the top of the list is the "universal default clause" which
allows issuers to monitor you credit report and raise your rate
if you are late on any bill that appears on your credit report.
One major issuer, for example, will hike a 0 percent rate to
24.99 percent if you slip up!
In fact, true "fixed rates" are rare. Many consumers don't
realize that a "fixed" credit card rate isn't the same as, say, a
fixed-rate mortgage. In most states, card issuers can raise the
interest rate on a fixed-rate credit card with just fifteen days'
written notice. The new rate can typically apply to existing
balances as well as new purchases.
Fees are also on the rise. Take late fees, for example, twenty
years ago a late fee on a credit card was still fairly unusual,
and typically wasn't charged unless you were 15 days late with a
payment. Now you often must get your payment to the issuer by a
certain hour in the morning or you'll be charged a late fee of as
much as $39. Go over the limit and you'll not only pay more
interest, but a steep over limit fee as well.
Foreign travelers are often charged a "currency conversion
charge" of 1 - 2 percent of the amount of their purchase. As the
result of a class action lawsuit, Visa and MasterCard were
ordered to provide refunds of those fees in certain
circumstances. The problem wasn't that the fees were illegal, but
it was determined they weren't properly disclosed. The case is
being appealed.
Here are some findings from the nonprofit Consumer Action's
annual survey of credit cards (www.consumer-action.org):
-- The vast majority of surveyed cards have significantly
higher penalty rates that are triggered by one or two late
payments in a period of six months to a year.
-- One-fifth of surveyed issuers have shifted to tiered late
payments, which Consumer Action interprets as a deceptive way of
charging higher-than-average late fees.
-- The number of cards with $35 late fees has more than
doubled from last year.
-- More than half the cards surveyed require cardholders to
pay only 2 percent of the monthly balance each month - a
disturbing trend that dramatically increases the overall interest
paid by cardholders.
-- More than one-third of surveyed institutions will not
provide a firm annual percentage rate (APR) until they have
screened the applicant's credit history. Instead, they give only
a meaningless range of rates before screening, which makes
comparison shopping difficult if not impossible.
Don't get me wrong - I am not saying that credit card
companies should not make money. In fact, easy access to credit
has helped fuel our economy, especially when the going gets
rough. But many consumers now are literally trapped by high-cost
debt with few options. I've spoken to consumers who feel they
have no choice but to file for bankruptcy because their credit
card companies all raised their interest rates to between twenty
and thirty percent, and they simply cannot manage to pay the
balances down. With all the landmines out there for credit card
users today, the best strategy is still to pay down debt as
quickly as possible and limit yourself to a couple of cards to
avoid problems.
Sometimes, of course, that's easier said than done!
For more information on ways to build great personal and
business credit, visit www.BusinessCreditSuccess.com.
About The Author
Gerri Detweiler is considered one of the country's top credit
experts. She has been interviewed for thousands of radio,
television and print newstories including USA Today, The Wall
Street Journal, The New York Times, Dateline NBC and many others.
She has testified before Congress several times and worked on
reform of the national credit reporting laws.
MORE RESOURCES:
MORE COLLEGE CREDITChicago Sun-Times, United States - 11 hours agoDespite the current nationwide credit crunch, the State of Illinois secured $100 million for the student loans by tapping a new source -- credit unions. ... |
Credit repair is a DIY projectBaltimore Sun, United States - 6 minutes agoBy Gail MarksJarvis | chicago tribune Mike Ferrara wants to buy a house in a few months and is worried that mistakes on his credit report will keep him from ... |
Ask, and you might receive a lower credit-card rateSeattle Times, United States - 23 minutes agoPick up the phone, look at the latest credit-card offers and keep repeating this: The bank needs me more than I need it. By Susan Tompor Pick up the phone, ... |
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