How Credit Card Rate Jacks Actually Work
So you’ve got a great deal on a credit card: low interest, no annual fees and an awesome rewards program. But three months down the road, you find yourself paying exorbitantly high interest rates. How does this happen?
According to experts, credit card companies do just about everything they can to raise your interest rate. It starts with misleading commercials, followed by too-hard-to-resist low introductory rates, and finally, fine print that lays traps for the unsuspecting customer. Here are some of the tricks credit card companies use and how they work.
Late Payments: Make one late payment and you may find yourself with a significantly higher interest rate. A single lapse is enough to trigger penalty fees and rates. All that is required is your payment to arrive a few days or even a couple of hours late. To top it off, many credit card companies are now scheduling the due date for your payment on a holiday or a Sunday in the hopes that you’ll forget to pay on time.
Overextending Your Limit: Rates can also change if you make the mistake of overspending your credit limit. One charge over your limit can change your rate forever.
Playing Dirty: According to consumer rights activists, banks are playing dirty games on customers in a bid to squeeze even more out of them. For example, tucked into the fine print of many credit card agreements is a clause that allows the company to change your interest rate at any time, for any reason, as long as they give you 15 days’ notice.
Universal Default: Many credit card companies use the universal default clause. This clause allows your credit card company to hike your interest rates if you’ve made a late payment on any of your bills. It can be triggered by just about anything, including your car loan, mortgage, home equity or even your telephone bill.
Cash Advance: Don’t ever take a cash advance on your card if you can afford to avoid it. To begin with, you’ll get hit with a huge interest rate for the cash advance. Then, any payments you make to your credit card balance will be credited to your regular balance first, then your higher rate cash advance balance later. Even though your credit card company has not officially raised your rate, you’ll suffer the consequences as if they actually did.
Teaser Rates: To attract customers, card issuers like to offer ‘teaser’ rates. These rates are good for an introductory period and can be as low as zero percent for three to six months or more. You may not even know it’s coming, but once the initial period is over, you can find yourself hit by a regular rate of 20 percent or more. Moreover, if you make one late payment during this period, you can kiss your teaser rate goodbye.