Guest post written by Justin Scott
US government introduced Credit Card Reform Act to protect consumers by restricting over-the-top interest rate hikes, limiting fees, and improving disclosure. The Act has given a lot of relief to the consumers and stopped some of nastiest practices. However, cardholders should watch out for a whole new series of credit card traps and tricks.
Credit card traps and tricks
Here are the few credit card traps and tricks that you must know:
1. Increasing interest rates: Are you making your monthly payments on time? If yes, then you will be charged only 15.99% rate on your current credit balance. However, the credit card companies can charge as high as 29.99% interest rate on future credit balances as long as they warn you 45 days in advance, and you’ve retained the card for more than one year. This implies that you can incur credit card debt in future.
2. Higher initial rates: The card issuers are also charging higher initial rates. The average initial interest rate till the first quarter of 2010 has been around 14%. They have already raised it by 2 points in last 12 months. However, the average rate is supposed to climb to 16% in the second quarter of 2010.
3. Variable-rate cards: Don’t be shocked if you’re abruptly switched from a fixed-rate card to a variable-rate card. This is one of the new tactics that the credit card issuers have adopted.
For variable rate cards, they can charge higher rates in 2 ways. Firstly, the credit card company is likely to tie your card to an interest-rate benchmark which is few points above the prime rate. This means that if the benchmark goes up, so will the interest rate of your credit card. Secondly, the card issuers can hike the margin above that benchmark provided they inform you 45 days in advance.
4. No grace period: Most credit card issuers have shortened their grace period from 25 days to 20 days. Many others have waived the grace period altogether. It means that you’ll start accumulating interest the moment you buy something and that can cost you a bundle of extra dollars. So, check out your grace period or you can incur credit card debt unknowingly.
5. Raising fees: The new rules of Credit Card Act cap late fees at $25 and eliminate inactivity fees. However, there are several other ways card companies can charge you. The credit card issuers have hiked balance transfer fees, foreign transaction fees, and cash advance fees in addition to annual fees.
It has been reported that the number of credit card companies charging annual fees has increased in 2010. Around 24% of card issuers charged annual fees in the first quarter of 2010. A leading bank charged an annual fee between $29 and $99 for a limited group of cardholders in February 2010.
The most essential thing is to go through the mail you receive from your card issuer. Don’t presume its junk mail, because you have only 45 days to opt out if you read the fine print. And as credit card companies have become desperate to increase revenue, they will not only hike existing fees but are likely to create fees.
About the author:
Justin Scott is associated with the Creditmagic Community making regular contributions as a member of the community. Not only has be made notable contributions to the community, he has also written articles for different financial websites.
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