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| The Basics | Don't fall for these stupid credit card tricks
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Your credit card company is watching you
So you know that credit card companies will jack up their rates if you miss a payment or two.
But more people are now discovering they can lose a great rate if they miss a payment on any account -- or if they open too many new accounts or charge too much on any of the cards they have. Lenders routinely scan credit reports, said CardWeb President Robert McKinley, looking for evidence that their customers are piling up too much debt or having trouble paying their bills.
Creditors are looking for late payments, collection accounts, too much available credit or a high credit utilization -- maxing out cards -- as a basis to raise interest rates, McKinley said.
Even customers that credit card companies used to love -- those not-so-savvy folks who pay only the minimum each month -- are now regarded with suspicion.
Paying only the minimum means paying lots of interest, since it can take years, if not decades, to retire your debt this way. In the past, some lenders were so eager to encourage this behavior that they lowered their minimums from 2.5% or 3% of the balance to as little as 1%.
Now, though, some lenders have decided that people who consistently pay only the minimum are actually risky customers who are more likely to default, McKinley said. A few have responded by slapping punitive rates on those who pay only the minimum.
Also, regulators have been leaning on lenders for the last couple of years to boost their minimums so that consumers pay at least 1% of their principal balance, plus any accumulated finance charges and fees, each month. That has led to higher minimum payments for some customers.
How to fight back: - Be vigilant about your credit. Pay all your bills on time, apply for credit sparingly, and dont max out your credit cards. For more information, check out MSN's Decision Center on credit scores.
- Always pay more than the minimum. Paying an extra $25 a month on a $5,000 balance can shave nearly 16 years off the time it takes to pay back the debt, according to debt expert Gerri Detweiler of UltimateCredit.com. Youll also save more than $3,000 in interest costs.
- Check your credit report at least once a year and challenge any erroneous information. (Consumers are entitled to one free annual look at their reports from www.annualcreditreport.com.) Credit bureaus are required by law to investigate any item you dispute and to remove it from your record if its not accurate.
Balance-transfer roulette
You may not see as many 0% balance transfer offers as in years past, but card issuers are still trying to get customers to move their debt from one card to another with low-rate offers. Unfortunately, many of these seemingly tempting offers are studded with traps for the unwary. Among them:
Low rates for "life": What this usually means is a low rate -- usually 2.9% to 5.9% -- for as long as you carry a transferred balance. The problem is that any new purchases will get charged a higher rate, and your payments will go to paying off the lower rate balance.
Caps on balance transfer fees may be disappearing: Balance transfer fees of 2% to 3% have long offset some of the benefit of lower rates, but those fees were traditionally capped at $75. Now Chase and MBNA are experimenting with eliminating that cap, said CardRatings.com's Arnold. On a $10,000 transfer, that could mean paying an extra $225.
Bait and switch. Some lenders may offer a great rate for a balance transfer to a new card, but that doesnt mean youll get it -- even if the card issuer tells you youre pre-qualified for the new account. Once you apply, the lender might approve you, but only for a higher-rate card.
To make matters worse, bouncing a balance from card to card can hurt your credit score. Opening a new account can ding your scores, as can transferring a balance from a higher-limit card to a lower-limit one.
How to fight back: - Read the fine print. Try to avoid balance-transfer offers that only apply for a few months and lenders who might give you a higher-rate card than the one theyre advertising.
- If the card charges a fee to transfer your balance, know what it is and make sure the interest savings will be more than the additional charge.
- Use one card for balance transfers and another one for new purchases.
- As always, try to pay off your balance as soon as possible. The only way to win the credit card interest game is not to play.
Rethink which card you take overseas
Once upon a time, credit card users who traveled abroad got a great deal: their purchases qualified for institutional exchange rates that were much lower than the ones tourists found at exchange kiosks.
Today, though, most cards tack on a 3% fee, which includes the 1% charged by Visa or MasterCard for processing the transactions and 2% for themselves. That 3% represents $150 on $5,000 worth of transactions.
Still, there are a few cards charging less:- Capital One has a 0% transaction fee, which means it not only avoids tacking on an extra fee but absorbs the 1% that its networks charge.
- Providian charges just the 1% transaction fee.
- American Express levies a 2% fee.
- HSBC charges 1% to 3%, depending on the card.
How to fight back: Even with a 3% fee, you're still getting a better deal with a credit card than you would at most exchange counters overseas. But if you travel abroad frequently or spend a lot while you're there, a lower-fee card could be a good idea.
(A tip: Always take at least two major credit cards abroad, just in case one is lost or stolen.)
Liz Pulliam Weston's column appears every Monday and Thursday, exclusively on MSN Money. She also answers reader questions in the Your Money message board.
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