By law, credit card companies have to disclose their fee schedules to consumers. The trouble is, the calculations of these fees and finance charges are often found in the fine print of the account disclosure statement you receive when you first open your credit card account. In this case, what you don t know really can hurt you.
Here are 6 things you might don t know about credit cards:
1. They don t always have a grace period. Most credit cards offer 20 30 days “grace period”, during which time you could pay your entire balance and not incur any interest or finance fees. It s becoming more common for credit cards to have a shorter grace period, or none at all.
2. A 0 balance transfer offer usually has transfer fees. There are a number of credit cards that offer a 0 interest rate on balances transferred for a specific length of time, but what might not be evident in the offer is the 3 5 balance transfer fee. If you transfer $3000 from other cards to your new 0 interest card, you ll pay between $90 and $150 in fees. Chances are, that will be lower than what you d pay over the six or twelve months in interest that you re saving on the new card, but just keep in mind it s usually not completely free to transfer a balance.
3. The Two Cycle billing method is a nasty interest computation method! Credit card balances are computed with either the adjusted balance method, the average daily balance method or the two cycle billing method. With the two cycle method, the interest on your average daily balance is computed using your current billing cycle purchases AND the ones from the month before even if you ve paid the previous month s purchases off. Look for cards using the adjusted balance method for the best rates.
4. Fifteen days notice to skyrocketing fees. A credit card company has the right to increase or change your interest and fees at any time, as long as they give you fifteen days notice. Have you ever received an update to your terms in the mail? Most people just toss it in the trash, but keep an eye on these notices because even fixed rate credit cards can change rates if they send you these notices.
5. Lower minimum payment rates mean you pay even more. If you have credit cards, you know the effects of paying only the minimum amount due each month. It takes forever to pay off the balance and often the interest and fees are adding up faster than the minimum payment can pay off the card balance. Where all cards used to require 5 of the balance as the minimum amount due, now it s frequently as little as 2 . Just because your card only requires a $10 payment doesn t mean that s really enough!
6. Increasing of credit card fees across the board. Most people are probably aware of the practice of “universal default” by now – the consumer unfriendly method of raising interest rates on all credit cards from all lenders if the cardholder is late with one of their accounts. So if you pay your Discover Card late, you could see an interest hike on your MasterCard, Visa and American Express cards, too.
Credit cards give us access to spending power when we need it, and the ability to buy or reserve things online or over the phone. When they re not used correctly, or you don t understand the calculation of rates and fees for your credit card, you wind up paying a fortune in unnecessary fees and interest.
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