To print article, click Print on your browser's File menu. Go back   Analyze your spending Personal finance bookshelf Track your financial affairs here Shop for money management resources Do your taxes online Find It! Article Index Fast Answers Tools Index Site map Recent articles by Liz Pulliam Weston: • Your secrets for sale -- cheap, 4/26/2006 • 22 ways to foil credit card thieves, 4/23/2006 • Polish up your financial plans, 4/19/2006 More...		The Basics Don't fall for these stupid credit card tricks 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. Find a loan that's right for you at the Loan Center 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." Related news and commentary on MSN Money • Bankruptcy law backfires on credit card issuers • The truth about credit card debt • New threats to your credit score • 9 ways to build a killer credit score • Zombie debt collectors dig up your old mistakes 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. 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. Liz Pulliam Westons newsletter Get the latest from Liz Pulliam Weston. Sign up to receive her free weekly newsletter. Your e-mail address:   Learn more about newsletters   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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