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Useful Credit Card Information

If you apply for a credit card online, there are things that are helpful to know. This credit card debt article has information on:

Credit Card Debt: Check out four tips to avoid accumulating debt on your credit cards.

What Credit Card Companies Don't Want You To Know

Consumer groups have been saying for years that credit card contracts are confusing and difficult to understand. The Government Accountability Office (GAO), the watchdog arm of Congress, agrees. They have stated that forms they examined “buried important information in text, failed to group and label related material, and used small typefaces.” Also, most of the contracts are written in language above the reading level of around half the adults in the US.

Even If You Pay On Time, Interest Rates Can Be Raised

Even if you make your credit card payments on time every month, the credit card companies may raise your interest rate automatically, without notifying you, if you happen to be late paying your other bills like your utility bill or mortgage or a different credit card bill. Rates may double or triple up to as high as 30%. The company may even raise your rate simply because they think you've taken on too much debt. When your interest rate is raised, your minimum payment will also be raised. Not only that, the new, higher interest rate will be retroactive so that your existing balance will be charged the higher rate.

This practice is know as the “universal default” clause. More and more it is becoming a standard clause in your credit card agreement. The bank reasons that if you have trouble paying some bills, you may have trouble paying theirs.

Interest Calculations Can Be Confusing

Some credit card companies use what is called two-cycle or double-cycle billing. That means that what you pay in interest is based on your average daily balance over two billing cycles, not just the current one. So if your balance was higher last month, you will pay more interest this month than you would if the company did not use two-cycle billing.

If your contract includes the double-cycle billing, you may want to change to a credit card that doesn't. Only two of the six major credit card issuers use that method of calculation.

Also, you may be charged a different rate for a cash advance than for purchases. And the interest on a cash advance can be charged even if you pay your balance in full by the due date.

You May Be Charged Interest on the Balance You Have Paid

Your contract may state that if you do not pay the balance in full by the due date, you will be charged interest on the entire amount. That means that, for example, if you balance is $2000 and you send a payment of $1500, you will be charged interest on $2000 anyway.

Interest Rates Vary

Consumers have benefited from competition in the credit card industry. Interest rates vary tremendously. Some are below 10%, others over 20%. It is well worth your time to compare different cards. We have tried to make the comparison easy with the introductory APR and regular APR clearly stated at the top of each card's description.

Money Matters

$$ Americans carry, on average, $8,000 in credit card debt from month to month.

$$ Over 40% of families in the US spend more than they earn.

$$ One out of every 100 households in the US will file for bankruptcy.

$$ In 2000, Americans paid approximately $63 billion in interest.

$$ In 2005, Americans charged $1.8 trillion on the 690 million credit cards they carried.

$$ If you make only minimum payments an $8,000 debt at 18% interest, it will cost over $24,000 and take over 25 years to pay off.

Late Fees

Before 1996, late fees were between $5 and $10. But in 1996, the U.S. Supreme Court in Smiley vs. Citibank case lifted restrictions on late fees, causing them to soar, Some are as high as $35. The benefit of this decision for credit card companies has been that their revenue from charges for late fees, over-the-limit fees and fees for returned checks have almost doubled. It is possible that penalty fees could go as high as $50.

Not only are they not limited in what they can charge for a late fee, they can charge you even if you are an hour late because they can state not only the due date, but also the due time. That means that if they state the due time as 10:00 a.m. and your check arrives at 11:00 a.m. on the due date, it is late.

And they base the late charge on when the payment is received, not when you mail it. If your payment is delayed in they mail, that is your problem. Consumer advocate groups are trying to make the companies base your payment date on the postmark, not on when they receive it.

If you do get charged a late fee and you think you paid on time, you can call the company and dispute it. Often they will waive the fee. After all, they know how easy it is for you to get a different card. They want to keep your business.

Over-the-Limit Fees

Over-the-limit fees may be charged, even if the company has approved the transaction.

Always Read the Fine Print

Tucked into the fine print that is usually ignored are provisions that can add up to large fees, penalties and rising interest rates. Below are some of the important sections of a typical credit card contract:

  • Applying Payments – If you have balances on your account which have different interest rates, your payment will be applied to the balance with the lowest rate first. The balance with the higher rate will continue to compound interest.

  • Authorizing Charges – The card may be cancelled at any time because:

    • the company suspects fraud
    • the account is in default

  • Spending Limit – Your credit line can be increased, reduced, or canceled any time.

  • Grace Period – If your balance is zero at the start of the billing period, you do not have to pay finance charges on purchases, as long as your balance is paid in full again by the next due date. If not, your interest will accrue from the time of your purchase.

  • Default Rates – As explained above, the "universal default" allows credit card companies to charge you higher interest if you are late on any other payment (phone or utility bills, car payment, mortgage), even if you are on time with your credit card payment.

  • Stolen Credit Card Numbers – If your credit card (or even just the number) is stolen and used by the someone, the maximum you are liable for to the credit card company is $50.

  • Fees – In addition to the annual fee, you may also be charged for:

    • bounced or unsigned check ($35)
    • late payment ($35)
    • payment by phone ($14.95)
    • copy of statement ($5)
    • balance transfer fee - charged if you transfer what you owe on your credit card to a new card - a percentage rate charged on the amount you transfer with a maximum amount which could be unlimited

  • Right to Sue – Any dispute between you and the credit card company may be resolved only by binding arbitration. What that means to you is that you must abide by the decision of the arbitrator and you cannot sue the credit card company.

  • Changes to Terms of Agreement – The terns of agreement may be changed at any time for any reason. All the credit card company has to to do is notify you by mail 15 days beforehand. Changes will affect the current balance. If you use your credit card, you are accepting the new terms.

Which Are You?

Here are the terms credit card companies use for their customer categories:

"Revolver" - never pay in full, roll credit card balance over month to month.

"Deadbeat" - pay balance off in full every month.

"Gamer" or "Rate Surfer" - switch their usage between credit cards depending upon inter`est rates.

I Thought They Had to Disclose Everything!

In its study conducted in October, 2006, the Government Accountability Office found that not all companies disclosed the fee they charge for paying your bill by phone, which can amount to $5 to $15.

Usury Laws

Have you ever been surprised by the return address on your credit card statement? You man notice they are located in a state such as Delaware or South Dakota. That’s because some states have either weak or no “usury laws,” meaning that there is no cap on the interest rate they can charge. These are the most common states where big banks and credit card companies will have their operations:

  • Arizona (36% cap) – Bank of America, Direct Merchants
  • Utah (no cap) – American Express
  • New Hampshire (no cap) – Providian
  • South Dakota (no cap) – Citibank (Master Card)
  • Delaware (no cap) – JP Morgan Chase, MBNA, Morgan Stanley (Discover), HSBC
  • Virginia (no cap) – Capital One

Banks take advantage of the usury laws and locate their companies in one of these states where there is no cap on interest rates, then issue cards to people living in states where there is a cap. And it’s all legal because the interest rates are listed in the cardholder agreement, which most people don't read.

* See the online credit card application for details about terms and conditions. Reasonable efforts are made to maintain accurate information. However, all credit card information is presented without warranty. When you click on the "Apply Now" button, you can review the credit card terms and conditions on credit card issuers website.

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