Beware Credit Card Users--It Is All In The Fine Print
Below is a MRR and PLR article in category Finance -> subcategory Credit.
Beware Credit Card Users: It's All in the Fine Print
Summary
Failing to read the fine print on your credit cards can lead to unexpected and costly surprises. Today, millions use credit cards for purchases, but that supposedly low 9% interest rate can quickly soar to 30% without warning, until it’s too late.
Understanding Key Terms
Terms like "penalty interest rate" and "universal default" are common in credit card agreements. Banks use these clauses to manage risk, but the rates and fees are often disproportionately high. In the past, when users hit their credit limits, issuers simply cut them off, which protected consumers from extra charges.
Unfortunately, now you're allowed to keep spending beyond your limit, only to face over-limit fees (up to $29 per billing period) and permanently higher rates. This can severely strain your budget. Always read the fine print carefully to avoid these pitfalls.
Tips for Managing Your Credit Card
1. Timely Payments: Never pay your credit card bills late, not even by an hour. A late payment can increase your interest rate permanently. In 2004, penalty rates accounted for $14.8 billion in revenue for issuers, with rates averaging 24%.
2. Understand Payment Deadlines: Payments must reach creditors by a specific time. If unclear, contact your issuer for details.
3. Beware of Universal Default: Even if a different payment, like your mortgage, is late, credit card issuers might raise your rates, categorizing you as high-risk. Some banks even charged a 35% universal default rate.
4. Mind Your Credit History: Frequent credit inquiries can trigger a universal default rate and impact your credit rating.
In 2003, issuers made $7.7 billion from penalty fees. Without a legal cap on bank interest rates, and a 1996 Supreme Court decision preventing states from setting late fee limits, consumers must stay vigilant.
Legislative Changes
There are ongoing efforts to ban "universal default" rates linked to external issuer errors, ensure penalty fees align with issuer costs, and remove over-limit fees. Until these changes take effect, protect yourself by thoroughly reviewing all terms and conditions. Remember, it’s all in the fine print.
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