Credit Card Tricks You Need to Know
Credit cards are a popular payment method for millions of people worldwide. They offer convenience, rewards, and much more. However, credit cards can also be dangerous if not handled properly. There are rules, disclosures, and fine print that card issuers use to their advantage. As a result, failing to understand these can leave you in debt or with fewer rewards than you deserve. In this article, we’ll explore five lesser-known tricks that credit card companies use and how to avoid them.
1. 0% Rate Clawbacks
0% teaser rates are a common promotion among credit card issuers. These include 0% balance transfers, cash advances, and financing for purchases. However, these promotions come with a catch. If you miss one payment, you not only lose your 0% rate, but you may also pay the penalty rate from the first day of the loan retroactively.
For instance, if you finance a sofa for $1,399 with 0% for 12 months, and you make 11 payments on time and miss the 12th payment by a day, you’ll be charged interest at the penalty rate (e.g., 24.99%) for the entire 12 months. To avoid this, ensure you set up pre-authorized debits equivalent to the minimum monthly payment where possible. This takes away the risk of making any late payments.
2. Point Annulments
Some issuers may annul your accrued rewards if you’re delinquent on a payment. Therefore, failing to make a payment may cost you all the rewards you’ve earned. However, once you make your payment and your account is current, you can call your issuer and ask for your rewards to be reinstated. Most issuers force you to make payments by playing hard to get. Once made, they’re happy to give you your rewards back. Thus, ensure that you don’t allow your rewards to vanish altogether.
3. Penalty Rates
If you miss one or two payments, you may be hit with a penalty rate of up to 30%. However, even if you make payments on time, your issuer reserves the right to change your interest rate to the penalty rate at their discretion. They may do it because your credit score has changed or to boost their own profitability. The good thing is, issuers must notify you of any rate increase beforehand. To ensure you don’t miss any updates, read your mail and the fine print.
4. Overlimit Fees
Although credit cards have a set credit limit to protect you and your issuer from overspending, some issuers allow you to go over your credit limit and charge you an overlimit fee as high as $35. For example, suppose you buy a bottle of milk that brings you $1 over your credit limit. In that case, you’ll be charged $35, making it the most expensive bottle of milk ever. To prevent exceeding your credit limit, set up mobile alerts, and your issuer will send you a notification when you come close to a predetermined range of your limit.
5. Grace Period Cancellation
If you pay down your credit card bill every month, the issuer lends you money for free. Typically, you have 21-28 days after you receive your statement to pay your credit card bill to avoid interest. However, if you’re late, you’ll lose the interest-free period on new purchases for that statement period. Additionally, the issuer may remove your grace period for the next 6-12 months, meaning you’ll be charged credit card interest rates from the purchase time, even if you pay future bills on time.
If this happens to you, call your issuer, and ask them to re-instate your grace period. Kick and scream and threaten to leave if they don’t. Actually, leave and use another card if they don’t re-instate your grace period, otherwise, each purchase on your card will be more expensive than the ticket price.
Credit card companies use several tricks to make more money from you. However, by knowing these tricks and regulations like those set by the Consumer Finance Protection Bureau, you can navigate credit card waters better. Always be sure to read the fine print and keep your account current. By doing so, you’ll be able to enjoy the benefits without falling into debt.