surprising secrets credit card companies wont tell you
Surprising Secrets Credit Card Companies Won't Tell You
Credit companies are often accused of keeping their customers in the dark about the rules and regulations on interest rates, late payment penalties, and the mire of minimum monthly payments. After the CARD Act of 2009, credit card companies have become a lot more transparent, but still there are several 'surprising' secrets they won't tell you about.
An Act for Credit Cards...
On May 22, 2009, President Barack Obama signed the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act. The Act was passed after widespread concerns that most Americans were being charged exorbitantly by banks and credit card companies. According to a White House press release, the Act was a step towards 'ending the days of unfair rate hikes and hidden fees'.
Credit card companies and banks come up with exciting offers in order to lure customers into signing up for a new card. Due to the immense competition in the credit card sector, each company tries to outdo the offer of its rival, by upping the 'perceived benefit' of the card in the eyes of the consumers. These days, it is not uncommon to see numerous companies aggressively marketing their 'low-interest' and 'longer grace period' cards. Most companies market their offers in such a manner that many consumers fall for the deal, and I guess, that explains why an average American has 4 credit cards to his name.
While some offers may be really tempting, there are some hidden charges, and obscure terms and conditions that the credit companies don't want you to know about, because these details will make you think twice before signing up for a card. In the following paragraphs, we will tell you some surprising secrets credit card companies don't want you to know.
Reduction in Grace Period
Most credit cards used to come with an interest-free grace period of around 30 days. However, after the CARD Act of 2009, credit card companies are looking at new ways of generating profits, and shrinking grace periods are a direct consequence of that. You may be surprised to know that now, some banks do not offer any grace period at all; you will be liable to pay an interest from the very day you use your credit card. Therefore, it is very important to know the grace period of a credit card before you sign up for one. Existing credit card users should also call up their respective companies to know if there is any change in the terms and conditions. Also, next time you receive a 'fabulous' offer, that sounds too good to be true, do ask the rep about how much grace period they are offering you, and if it is going to change in the future.
You Can Negotiate Offers/Interest Rates
What most companies don't want you to know is that you can negotiate the rate of interest and annual fee before you sign up with them for a credit card. They often keep a sizable margin of profit for themselves while they 'offer' innumerable features and benefits to you, and if you happen to have a great credit score with a steady source of income, you can work your way around and negotiate the components of the offer. Also, if your bank has decided to change your Annual Percentage Rate (APR), you have the legal right to refuse the revised terms (according to CARD Act), after which, you have the option to pay off the entire balance at the old rate over a period of five years.
Low APR and Fixed Interest Can Change
A lot of consumers are lured into signing up for a credit card that offers low Annual Percentage Rate (APR) for a stipulated period of time, say six months or a year. However, the catch here is that the credit card companies reserve the right to quash the low APR if you make a late payment (non-payment until 60 days from the time the bank mails the statement to you). In these cases, they would put you back onto the standard interest rate. As far as the fixed interest rate is concerned, many companies put in a clause in the 'terms and conditions' section, that allows them to change the interest rate, by giving the consumer a 45-day notice.
Minimum Monthly Payments Mean Maximum Profit for Banks.
Many of us breathe a sigh of relief when we see, that despite have an outstanding bill of say $100, companies require us to make a minimum payment of only $10. But what we fail to realize is that minimum payments do not take anything off from the principal amount that we owe on a credit card. As long as we keep on making the minimum payments, the bank will not penalize us, but the tenure of paying the debt, and the interest rate will both increase considerably. If we analyze how much money we will end up paying to wipe off the debt on a credit card, we will realize that banks and credit card companies stand to make the maximum profit from us over a period of time.
Late Payment Ruins the Promotional Offer
If you have got a really great offer from a credit card company, you don't have to wait too long for the offer to go kaput. Most companies structure the offer in such a manner that one late payment gives them the opportunity to penalize you. A single late payment can mean that you are not only liable to pay a late payment fee, which can be as high as $35, but also a new penalty APR on your current overdue and on any future transactions. Most sales reps brag about how their credit card offers the lowest interest rates, unlimited credit limit, cash-backs, discount coupons, movie tickets, etc., but they conveniently forget to tell you about the impact of late payments on all these promotional offers.
Penalties are Not Restricted to Only One Card
Suppose Jack has 3 credit cards from ABC Bank Ltd., and he has an impeccable payment record on two of his credit cards, while on the remaining one, he has, on numerous occasions, failed to make payments on time. Ideally, Jack should be penalized on only one credit card, but he finds out that he has also been told to pay penalty on the other two cards. Banks and credit card companies link their credit cards in order to lower the risk of consumers defaulting on their payments. Therefore, if you have multiple credit cards from a single bank or provider, it is important to make it a point to ask them if a poor repayment history on one card will have an impact on the other cards.