Military Financial Advice - Military Times

4 tips to avoid getting burned by credit card companies

Lawmakers are starting to ask representatives of the credit card industry about abusive practices and confusing rules.

A Senate panel grilled officials with various credit card companies in a March 7 hearing, but it remains to be seen whether this interest on Capitol Hill will lead to new laws that would stop companies from preying on consumers.

In the meantime, do you know how to protect yourself?

I’m not a big fan of credit cards, but having them and using them correctly and responsibly are essential for obtaining good credit scores and the lower home and vehicle loan rates that come with those scores.

Personally, I like the $600 in free gasoline I earn each year with my credit card. My father likes all the airline miles he earns with his. But both of us pay our credit cards off every month — the rewards are gravy to us.

If you are among the millions of people who carry credit card balances month after month, the banks have their claws into you. You need to limit the potential for nasty wounds. How do the banks bleed you?

Common credit card tricks and pitfalls include:

•Raising your interest rate even if you’ve paid on time.

• Changing your payment due date unexpectedly, causing you to make a late payment.

• Charging late-payment fees even if payment is received on the due date.

• Charging multiple fees for going over your credit limit.

• Using multiple interest rates on the same card.

• Employing hard-to-understand balance transfer fees.

• Encouraging you to use your card for regular purchases.

Here’s some advice on how to avoid these traps.

1. Read balance transfer offers closely. Yes, they may offer a low rate for three, six, nine or 12 months, but what about the balance transfer fee? The fee is normally about 3 percent.

If you transfer balances frequently, this really adds up. Transferring a balance three times a year on $2,000, the combination of the usual low introductory (the “teaser”) interest rate and the fee would make your annual percentage rate about 14 percent. Is that a savings?

2. Know the different interest rates that apply to your card. Have you ever looked closely at your credit card statement? It can be pretty confusing. Did you notice, for example, that there are different rates depending on how you use your card?

The highest rate is likely for cash withdrawals. And if you use your credit card like an ATM card when purchasing something at a store, that is considered a cash-out transaction and there is an additional fee. That money is better off in your account, not the bank’s.

3. Know how over-limit fees work. Over-limit fees can raise your balances even if you pay the minimums and pay on time. One credit card holder who appeared at the Senate hearing went over his limit three times but was hit 47 times with over-fee limits, according to a March 10 report on denverpost.com.

But there’s another hidden way you can incur over-limit fees: If you carry a balance that is close to your credit limit, the monthly finance charges can send you over your credit limit. Many companies will charge you for going over the limit because of finance charges. These fees range from $25 to $39 each time. If it happens monthly, that’s $300 to $468 a year.

4. Check your due date every month. You can be assessed a late-payment fee if your payment is not processed by the morning of the due date. Don’t take a chance — send payments early.

There are a couple of credit card companies that have been known to suddenly change payment due dates. When you pay late because you didn’t know about the date change, they can charge a fee and raise your interest rate to the highest rate allowed by state law, usually about 25 percent.

Some banks will raise your rate to between 19 percent and 25 percent, even if you’ve never paid late previously — and they won’t reverse the increase if you call to complain. You can avoid this by doing three things: Pay early each month, pay more than the minimum due and keep your balance well below your limit, at least less than 70 percent of your limit.

Dave Peters is a semiretired loan officer and credit repair specialist. He is a trustee of the nonprofit organization Credit Learning Systems, which teaches college students about credit and debt. He’s author of the book “How Credit REALLY Works” and is a guest on radio shows nationwide.