Eight Things Every Credit Card User Should Know
Published on - June 14th, 2006 (Modified on - September 6th, 2011) (by J.D. Roth) 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).
Note: Some of this information has changed as a result of the Credit Card Act of 2009. You can read about some of these changes at What the New Credit Card Laws Mean to You.
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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This article is about Basics, Credit Cards
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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.
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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.
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Also, mandatory binding arbitration in the agreement is often to the detriment of the consumer.
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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.
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Fortunately, the upcoming weeks will see enforced some new credit card regulations which are going to be introduced by the Federal Government, restricting all credit card practices that are perceived as unfair. These restrictions include prohibiting:increasing interest rates on an outstanding balance (except under limited circumstances), applying payments to the minimum payment to maximize interest charges, requiring a reasonable amount of time for consumers to make payments.
Consumers have played an active role in the Feds enforcing these regulations, posting a lot of comments on the Federal Reserve’s website.
The credit card industry fears that that the limitations they are to deal with will affect their ability to deal with risk, and they will have to raise interest rates and decrease the amount of available credit.
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