companies are some of the most sophisticated marketers in
the business world. The average household receives over 30
credit card solicitations in the mail each year. Most of
these offers have attractive terms, but come with "fine
print" disclaimers that consumers rarely read. Here`s a list
of some of the most common things to watch for as you shop
for a credit card.
No grace period
If you carry a balance from month to month, most cards
provide no grace period on new purchases. This grace period
normally allows new purchases to be excluded from accruing
finance charges. However, the 20-25 day grace period does
not apply if you don`t pay in full each month.
Tip: Pay off your balance each month
to minimize your finance charges.
Shortened grace periods
Most credit card issuers offer a 25-day grace period in
which to pay for new purchases without incurring finance
charges. Some banks have shortened the grace period to 20
days--but only for customers who pay in full monthly.
Tip: If you pay off your balance each
month, ask your credit card issuer for 25 days grace.
Minimum balance syndrome
While it may seem beneficial to have a credit card when you
need to pay only 2-3% of your balance each month, the
reality is by making only the minimum payment, you`re paying
the maximum possible interest. The issuer stands to make far
more money from finance charges the longer you carry out
payments--and you foot the bill.
Tip: Pay all you can monthly.
Low intro "teaser" rates
If you sign up for a credit card with a low "teaser" rate,
such as 1.9% for the first four months, when the
introductory period expires, your existing balance will
likely be subject to the regular and substantially higher
Tip: Pay in full before the rate
increase or close the account.
Fewer rights on debit cards
Debit cards look just like other Visa and MasterCard credit
cards, but your payments are deducted directly from your
checking account. Under federal law, you may not have the
same right to "charge back" disputed purchases as you do
with a traditional credit card. Also, if your debit card is
lost or stolen, you may have unlimited liability for losses
if you don`t report the problem within 60 days, which is
different from the $50 maximum liability on credit cards.
Since these laws vary by state, it`s important that you know
what kind of card you have and the applicable law where you
Tip: Know your card. Is it a credit
card or a debit card? They can look alike.
Negotiate your fees or switch cards
Credit card companies have hundreds of different "offers" or
programs, with varying fees and interest rates. You may be
paying up to $50 a year or more as an annual fee on your
credit card. You may also be subject to finance charges of
Tip: If you`re a good customer, the
issuer may be willing to drop the annual fee and reduce the
interest rate -- you only have to ask! Otherwise, you can
switch issuers to a lower- priced card.
Many banks enticed you to sign up with extra benefits such
as lifetime warranty, a 5% discount on all travel, or
protection if an item purchased is lost. Now, some banks
have cut back on these extras without the fanfare that
Tip: Read annual disclosure of
changes, and switch cards if important features have been
discontinued or materially changed.
The right to setoff
If you have money on deposit at a bank, and also have your
credit card with the same institution, you may have signed
an agreement when you opened the deposit account which
permits the bank to take those funds if you become
delinquent on your credit card.
Tip: Bank at separate institutions, or
Offers with no grace period
That fabulous offer you received in the mail for a platinum
card with a $5,000 credit limit may not be so great. One
common feature is the card has no grace period. You are
charged interest on everything from the day you buy it, even
if you pay on time.
Tip: Don`t take the offer. There are
too many credit cards that offer grace periods.
Double fees on cash advances
Most credit cards impose both finance charges and a
transaction fee on cash advances. Interest starts from the
day of the advance, and the transaction fee can be up to 4%
of the amount taken. Even if you limit cash advances to
small amounts, there may be a minimum transaction fee as
high as $4.00 per advance. A $4 transaction fee makes a $20
cash advance pretty expensive.
Tip: Limit cash advances.