Read The Fine Print: Credit Card Users
You know not reading the fine print of the credit card applications can be an invitation to be slapped with penalties every time out unless you really look closely. Now a days millions of people are using credit cards to make purchases for many various items. 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. That’s right there is a grace period that most credit cards do not make nearly as plain site as you may think.
What To Look For While Reading The Fine Print
If you already know what these terms mean then pass over but knowing what “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 credit card company or credit card issuer can say they warned you before. The interest rates and hidden fees within these provisions are all out of proportion to the financial risks associated with these.
Credit card issuers have used better ways in the past to protect themselves. For example, they used to cut customers off from using the credit card for any purpose after they hit their max credit limits. I feel this is a very good thing for the credit card user because they might not know what their max credit limit may be and will cut down on the hidden fees and hiked interest rates that will come with this.
Now these credit card companies allow you to keep spending so they can charge you over-limit fees (as much as $29 per billing period) and permanently higher rates. This is very common for many credit card companies especially when your interest rate has increased and if you the consumer are not currently aware of this then you will pay higher monthly payments mainly do to an oversight. This can be devastating for the budget of many users especially if you are living paycheck to paycheck and are limited on the amount of disposable income that you can spend each month. So be careful–always read and understand the fine print before it is too late.
Why Reading The Fine Print Helps You The Credit Card User
If you happened to read the fine print for you credit card statement or possibly the credit card application when it amounts to late payment for your credit card. Never pay your credit card bills late even by an hour as your interest rate can be increased permanently. Most interest rates are locked in for a set amount of time and will increase after that introductory period has passed. Although the most common mistake is paying the credit card payment late because that introductory interest rate that you locked in will increase to that super high interest rate that you were not expecting to pay until you made that late payment.
I will refer back 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. Credit card 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.
On average credit card issuers make between $7 to 10 billion on penalty fees annually. So it is in the credit card companies best interest for you to slip up and violate the terms of your credit card application. There is no legal cap on banks’ interest rates until recently.
There is legislation that is underway to ban the “universal default” interest rates based on alleged missteps with another credit card issuer, ensure that penalty fees match issuers’ costs and ban over-limit fees. These are just a few examples of why it is important for you to read the fine print for credit card users. But until then you have to be extra careful and read every fine print because many of your questions are probably covered within the fine print in the terms and conditions of the application.
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