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The official Get Rich Slowly stance on credit cards remains: don’t use them. If you do use them, at least take a few minutes to read this list of eight things a credit card user should know from the website for Frontline’s The Secret History of the Credit Card (discussed here yesterday).
According the site, these are the things you should know if you use credit:
- Even if you make your credit card payments on time, the credit card bank can raise your interest rate automatically if you’re late on payments elsewhere — such as on another credit card or on a phone, car, or house payment — or simply because the bank feels you have taken on too much debt.
- Your credit score — known as a FICO score — has become a vital statistic for many Americans and can be widely shared. It is used to determine how much you can borrow, how much you pay for life insurance, if you can rent a home, and, as already noted, it can be a factor in determining the interest rate you pay on a credit card. (More here.)
- There is no limit on the amount a credit card company can charge a cardholder for being even an hour late with a payment.
- It’s important to read the fine print on your credit card agreement.
- Many Americans are inattentive about their credit card accounts.
- There is no federal limit on the interest rate a credit card company can charge.
- Significant credit card debt can put you at a markedly higher risk of bankruptcy.
- You can get help.
If you use credit, use it responsibly.
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June 14th, 2006 at 1:10 pm
If you want more credit information than you could ever read, check out http://www.creditboards.com - a great resource for those looking for a mortgage or looking to improve their credit score.
June 15th, 2006 at 1:43 am
Another amazing and little known fact. Credit card agreements usually give the companies the right to put an account in default if the payment is late by even a day, even if it is only the first time. Putting an account in default allows the credit card to charge subprime rates (25+%) usually for 6 months, continuing until the borrower successfuly stays current for 6 months in a row.
When I was unemployed, I was late for two payments on a $3500 debt. I paid, but paid late. That turned my interest rates from 12% to 25% for 6 consecutive months (that’s over $400 in penalties, plus the $30 late fees for 2 months). As luck would have it, I was one day late on month 6, which allowed them to keep subprime for 6 more months (and by that time, I paid it off completely).
Almost all credit card agreements give lendors this discretionary power. However, whether they choose to exercise this option depends on whether they want to keep you as a customer or want to squeeze you for all you’re worth. On a positive note, when you make telephone contact with a live person at the credit card company about your problems, the customer service usually have authority to erase one late fee.
Keeping debt on a credit card is not a good idea, but the secondary problem of being absolutely sure minimal amounts are paid on time is another important problem. People need to ensure that a reliable reminder system (or automatic withdrawal system)is in place to make sure you are never late.
June 15th, 2006 at 1:44 am
Also, mandatory binding arbitration in the agreement is often to the detriment of the consumer.
June 15th, 2006 at 12:28 pm
also, although it might not be a good idea to *use* credit cards, it is a good idea to *have* them, for credit score reasons… My wife and I keep all of ours in a little fireproof mini-safe with our other important papers, and they are all on auto-debit for the $3 monthly fee to keep them open.