Surprise! Some credit card companies don't
have your best interests at heart. Fools have told us about
some of the awful offers lenders have sent through the mail.
Even the most reputable credit card issuers bombard customers
with "perks" that are designed to pad fees and interest
payments. (Cash advances and convenience checks don't come cheap.)
You can ignore those carrots -- and we suggest
that you do by following the Fool's Rules for Managing Credit.
But in their pursuit of profit, some credit
card companies resort to underhanded practices. The fact that
many of the most blatant offenders operate out of South Dakota
and Delaware is no coincidence. Those states have more relaxed
consumer-protection laws and let banks raise interest rates
and fees to levels that are illegal elsewhere.
If you're shopping for a new credit card --
or just want to see how yours stacks up -- be sure to read the
dos and don'ts outlined for all types of cards in "Finding
the One." To cover the rest of your bases, read on and
watch out for these card tricks:
Tricky teaser rates
Like a cotton candy buzz, teaser rates don't
last. But they are darn tempting, especially if you are looking
to transfer an existing balance from one credit card to one
that offers a lower interest rate. This can be a great strategy
to pay down your debt faster -- but it's one that you need to
use with care.
Creditors are now making it more difficult to
continuously transfer balances from one low-interest-rate card
to another. If you toss cards aside like Wet Naps after a rack
of barbecued ribs, you may find yourself subject to a steep
Here's a scary scenario: An offer for an eye-poppingly
low-rate card arrives in your mailbox. You jump at the chance
to transfer a heap of money you owe on a high-interest card
to the new one. After six months, the interest rate on your
new card jumps to post-promotional levels -- usually in the
high teens or low twenties. But you already have another low-interest
lender lined up. You transfer your balance and -- boom! -- the
dumped card charges you retroactively the higher rate because
you didn't read the microscopic print, which points out that
you cannot transfer a balance for an entire year.
Before you sign up for a card with a low, low
interest rate, find out what that rate applies to. New purchases?
Cash advances? Balance transfers? Watch out for cards that force
you to pay a higher rate retroactively or charge you a penalty
fee if you cancel the card. And try to find a teaser rate that
lasts at least six months.
Pursuing the uncreditworthy
Creditors often prey on those who are least
creditworthy by scanning credit records for telltale signs.
If you are a student with no income or have recently emerged
from bankruptcy, credit card solicitors would like to talk to
you. They know that the recently bankrupt can't declare bankruptcy
for another six years, and that Junior probably doesn't know
the first thing about budgeting.
The magically appearing annual fee
You signed up for a card with no annual fee.
Then, blammo! Out of the blue you find one. Some lenders start
charging an annual fee to their customers who pay their bill
off every month. The best recourse: Cancel the card.
A sliding credit line
Another abhorrent practice is to entice a customer
to use a cash advance check or a skip-a-month payment offer
and then lower their credit limit. The maxed-out customer is
then charged an additional fee for being above it. A variation
on this theme is to simply lower the customer's credit limit
once they reach it.
You may not have to pay a finance charge to
get a cash advance. But most banks charge hefty transaction
fees, which can be around 2% of the total amount and no less
than $10. Also watch out for transaction fees for calling the
toll-free number to check your balance and penalty fees for
account inactivity. (Don't forget about that credit card buried
in your sock drawer.)
The disappearing grace period
Watch out for lenders who pull the grace period
out from under you -- especially if you are a "freeloader,"
someone who pays the balance in full every month. Remember,
if your grace period is eliminated, you'll accrue interest from
the day you make a purchase. The only way to avoid a finance
charge would be to pay your bill before you receive it.
The best way to combat any of these offensive
attacks is to immediately call your lender on it -- literally.
Call the toll-free number on the back of your card and ask to
have the fee refunded, grace period re-instated, or credit line
If they won't budge, first ask yourself if there's
a good reason for the fee. ('Fess up -- at least to yourself
-- if you were late with a payment or if you abused your line
of credit in any way.) Then cancel your card and inform the
customer service rep exactly why you are ditching it. Then head
over to the Credit Card discussion board and warn other Fools.
Learn much more about how to make the most of
your credit, visit our Credit Center. And check out the Motley
Fool Visa card -- we negotiated a good deal for Fools.