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| The Basics | Don't fall for these stupid credit card tricks
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Lenders are counting on you to fatten up their profits -- with higher rates, new fees and more fees -- all hidden in the fine print. Here's how to fight back.
By Liz Pulliam Weston
The competition among credit card companies has rarely been fiercer. So why are your credit cards costing you more than ever?
A nearly saturated credit card market means lenders are looking for new ways to boost their profits, and that often means bigger fees and higher interest rates for all but the most careful consumers. A rash of consumer bankruptcies has lenders wary as well; even though the bankruptcy laws got tougher in 2005, credit card issuers are still likely to penalize customers they think are higher risk.
What follows is a sample of the stupid credit card tricks lenders are using to ding you, and what you can do to fight back.
Fees, fees and more fees
Fees are a huge part of lender profits these days. Card issuers are hiking them, eliminating caps and generally looking for ways to zap the unwary.
"No issuer that we know of has broken the $40 barrier yet on either late or over-the-limit fees," said Justin McHenry, research director for IndexCreditCards.com, "but the $39 mark is showing up more often, so its probably only a matter of time."
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Its not that weve suddenly become more remiss about our payments. When we lapse, however, the penalties are much greater. Consider:- The average late fee is now $34.42, according to credit card tracker CardWeb, nearly three times the $11.96 average charge in May 1994. Many lenders use a tiered fee system, so that balances of $500 or less trigger a $15 fee, while higher balances reap fees of up to $39.
- Over-limit fees, which are added to your bill when you exceed your credit limit, crossed $30 a couple of years ago and now average $31.22, up from $12.56 in 1994.
- Cash-advance fees used to average about 2% with a $2 minimum and $10 maximum; today, those charges average 3% with a $10 minimum and no maximum. Cash advances also come with high interest rates that kick in immediately, with no grace period.
Meanwhile, lenders are reducing grace periods, the time you have to pay your bill before finance charges and late fees apply. The average grace period is just over 21 days now, compared with nearly 30 days in 1990. Issuers that used to offer a little leeway -- not charging late fees if the payment was received within a week or so of the due date -- now slap on fees if your payment didn't arrive by a certain time on the due date.
That means more of us are getting slapped with charges. Two out of three people, in fact, paid a late fee last year. Late payments also typically trigger so-called "punitive" interest rates that can exceed 30% and last six months to a year.
That's true even with cards that are trying to tap into consumers' frustration with ever-rising fees. The Citibank Simplicity Card and Clear from American Express, for example, both promise no fees of any kind. The stinger lies in what happens if you actually miss a payment or exceed your limit: a punitive interest rate that will take your breath away. The Citibank card's rate soars to a variable rate of 31.74% after one infraction; Clear rises to 29.74% after two lates.
Those rates "are not exactly what I would label as consumer-friendly," said Curtis Arnold, founder of CardRatings.com.
How to fight back: - Set up an automatic debit with the issuer or use the recurring payment feature of your online bill-pay system to ensure that at least your minimum always gets paid before the due date and time.
- Monitor your balances so you don't go over the limit. In fact, using more than 30% or so of your credit limit can ding your all-important credit scores, so aim to keep your balances below that point on all your cards.
- If youre charged a late fee, call the card issuer and protest. Many are willing to remove the fee if youre a good customer and not habitually tardy. Try to get the punitive interest rate reduced as well.
- Dont use a credit card to get cash. It was always a bad deal and now is even worse.
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MSN Money's editorial goal is to provide a forum for personal finance and investment ideas. Our articles, columns, message board posts and other features should not be construed as investment advice, nor does their appearance imply an endorsement by Microsoft of any specific security or trading strategy. An investor's best course of action must be based on individual circumstances.
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