5 credit card company tricks — and how to thwart them

True or False? Credit card companies lure you in with big promises, but bury the nasty stuff in fine print.

It would be hard to find many people that disagree. Unfortunately, when the consensus is that card companies are out to get you, you might be tempted to throw up your hands and give in, saying “What can I do?” If that's your attitude, you can be sure they'll take full advantage.

Because you read Get Rich Slowly, though, I'm guessing you're a little more savvy, a little more proactive about your finances, a little more likely to look before you leap. So, let me give you five specific things to watch out for, both when getting a credit card and when using the card you have, and how to avoid each trap.

Promise #1: “As Low as 9.99% APR!”

The Trap: Your interest rate could be as low as 9.99%… but it could also be as high as 20.99%, or whatever the card company has put in the fine print.

Your Plan: Read the “Schumer box” (where the interest rate is shown in larger type, usually on the reverse side of an application) to see if the card company has allowed themselves the luxury of giving you any interest rate they please. If yes, either consider your credit history and go in with your eyes wide open to the possibility of a higher rate, or choose a credit card that offers a single take-it-or-leave-it rate. In that way, you're either approved or rejected, but you don't come away feeling fleeced.

Promise #2: “Up to 5% Cash Back!”

The Trap: Several. The card may offer you much less than the 5% rebate until you spend a certain amount per year. On the flip side, it may give you a 5% rebate for the first $300 in purchases each month, then drop the rebate down to 1% or less.

Your Plan: Stay away from cards that market a rebate “up to” a certain percentage, and go for those that promise a “full” percentage. And check the fine print for caps on monthly or yearly rebates.

Promise #3: “0% APR on Balance Transfers for 12 Months!”

The Trap: Two-fold. First off, it's almost impossible these days to transfer a credit card balance without paying 3% of the balance upfront. Transfer $5000 and you'll pay $150 before we even start talking about paying down the balance.

Second, almost all card companies take your payments and apply them first to balances with the lowest interest rate. Say you transfer $1000 to a card at 0%. The card's interest rate on new purchases is 13.99%. This month you buy $500 worth of stuff with the card, then pay $500 when the bill comes. Do you still have a $1000 balance at 0%? No, you have a $500 balance at 0% and a $500 balance at $13.99%! Why? Because your $500 payment went toward the balance sitting at 0%, not toward the balance sitting at the 13.99%.

Your Plan: A couple of options. The easy thing to do would be to swear off credit for a bit — transfer the balance then don't use the card until it is paid off. (You'd stilll get hit with the 3% fee, but it might be worth it if you had a high interest rate on your old card.)

If you have decent credit and a little more self control, you could get a new credit card that offers a 0% rate on purchases for 12 months, then use it while you pay off your old card's balance. By doing so, you focus on paying off your high-interest debt while floating new purchases at 0%. If you follow my logic, this is very similar to transferring your balance at 0% but without the fee. Either way, recognize that the 0% rate doesn't last forever and the bill eventually comes due.

Promise #4: Your Card Has a Credit Limit of $3000.

The Trap: While logic would tell you that your card company won't approve purchases beyond the limit, the reality is that they will let you charge beyond your limit, then slap you with a $39 fee to penalize you.

Your Plan: Don't think of your card company as a caring parent who cuts you off when you overspend. It's up to you to keep track of when you get close to your limit. (By the way, you really should not be getting that close to your card's limit. It's hell on your credit score.)

Promise #5: “Any Time for Any Reason”

The Trap: Unlike the other promises, this one's too nasty for the issuers to put a positive spin on, so it stays tucked away. In short, in almost every card agreement, the card issuers give themselves the right to change your interest rate at any time for any reason, even if you've done nothing wrong. And they only have to give you 15 days notice, so you could find yourself scrambling if it happens to you.

Your Plan: Have a second credit card before this happens instead of waiting until you're in trouble. You don't ever have to use the second card, but the last thing you want is to have your interest rate jacked up to 25% with no recourse if your credit card issuer decides to play hardball.

Credit cards ain't for fools. If you're going to carry one, then take responsibility for understanding what you're getting into, and fight fire with fire when your card company decides to play rough.

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Beth - Smart Family Tips
Beth - Smart Family Tips
11 years ago

What a great post. I checked out the Index Credit Cards site from J.D.’s link — there’s a wealth of information there. On this post, I really liked the suggestion in Promise #5 to have a back-up card. I plan to work on that this week, since we have one card that we use exclusively.

Trevor - 14 Year Old Money Blogger
Trevor - 14 Year Old Money Blogger
11 years ago

Nice credit card tips, although I don’t have one yet, I can show this article to people that do.

Jason
Jason
11 years ago

There is of course another way to avoid all these traps …. don’t have credit cards.

I have one and only one credit card, which is used for business travel. It’s paid off as soon as the expense report is paid.

Danny
Danny
11 years ago

Definitely agree that it’s important to read the fine print. Still, as Jason mentions above, credit cards are pretty convenient if you use them responsibly and pay them off.

Going back to the theme of many pf blogs, it’s really personal behavior that’ll get us into trouble (e.g. spending money we don’t have changes those 18% interest rate agreements from a number on paper into a hefty monthly payment)

Frugal Dad
Frugal Dad
11 years ago

The “APR as low as” has always chapped me as well. In the interest of full disclosure they ought to follow that line with “for applicants with a 750 credit score or higher.”

Miranda
Miranda
11 years ago

These traps kill me. But they are clearly successful. The one that irks me the most is when the companies allow you to charge more than your limit and then hit you with a fee. We just try to pay off the balance each month so we’re not getting deeper in.

Dawn
Dawn
11 years ago

Like the men’s clothing store ad says, “An informed consumer is our best customer.” too bad the credit card industry didn’t operate according to that model.

Starving Artist
Starving Artist
11 years ago

You have to beware, but if you’re trying to get out of debt, you should also accept some risk and transfer debt to 0% if you can. That’s how I got out of debt–I was careful, and I stopped paying interest over a year ago. Trishia over at Blogging Away Debt (bloggingawaydebt.com) finally transfered from high interest rates to lower interest rates–it’s been killing me to watch her pay interest for soooo long!

Justin McHenry
Justin McHenry
11 years ago

J.D., Thanks for allowing my post on your valuable real estate here on GRS. I wanted to follow up on this post by mentioning that Federal regulators just passed some new rules at the end of 2008 to rein in some of these card practices. Specific to what I mentioned in this post, card issuers will not be allowed to raise interest rates on existing balances but only on future purchases, they will have to give 45 days notice before a rate hike takes effect, and they will no longer be allowed to apply payments to lower interest balances first.… Read more »

Ross
Ross
11 years ago

My personal favorite – interest started accumulating from the date of purchase, not from the bill date. By the time I received my first statement, I had already had interest charged to me. I had this credit card for exactly 6 weeks. Shame on me for not reading the really fine print.

Colin
Colin
11 years ago

Re: #3 credit limit. Due to a “misunderstanding” with a local hospital they accidentally charged my card for a $6500 CT scan when we arranged to pay something like $350/month and that’s all we authorized them to charge over the phone. Despite having a $5k limit on this card Chase willingly placed the charge on my account and issued the finance charge despite the charge itself being my entire “credit limit” plus 25%. Strangely enough I found out when buying a bag of chips at a grocery store. This, however, didn’t stop Chase from permitting the same hospital from charging… Read more »

The Personal Finance Playbook
The Personal Finance Playbook
11 years ago

Nice post. Credit Cards are a game in which the deck is stacked against the consumer. Credit card bloggers help people go in with their eyes open.

Denise Baer
Denise Baer
11 years ago

Yet, there is one more to be aware of… no interest for 6 months promoted by a Menards, on their big card. Read the fine print. The statement read $23 min. payment, pay 730.23 by the 10th to avoid $89 deferred charges. I pushed my budget to pay the 730.23, only to get the next statement with $101 deferred charges added. The fine print, I had to pay the 23 + 730.23. I was told that the 730.23 was applied to my account to cover the min payment first, leaving me short to cover the 730.23. I cancelled the card… Read more »

jtimberman
jtimberman
11 years ago

I avoid all these traps by having paid off all my credit cards several years ago and never using them again.

Don’t play games with snakes, you will get bitten. Who do you think is winning these little games, you and your “plan” to surf balances, get cash back points and 0% APR? Or a multibillion dollar industry with more money invested in these tactics *per year* than you’ll ever see in your life if you keep playing their games?

Wake up people. Part of the problem with the economy in this country is people trying to beat these systems.

Bill in NC
Bill in NC
11 years ago

If you have a good credit score a personal (unsecured) line of credit is much cheaper than borrowing via credit card.

The interest rate on my personal line of credit down at the local bank has varied from 7% to 11% over the last few years (probably under 7% now)

No credit card is that cheap!

And if I want cash I don’t get hit with any transaction-based fees on advances from my personal line.

Sandy E.
Sandy E.
11 years ago

@ 15 — I have a USAA (rewards) master card w/an annual rate of 4% I received a letter last month saying they were increasing it to 6% in Feb. Since I haven’t done anything wrong, never carry a balance, I was annoyed and called them, and their response was that they needed to do it for business, so across the board. It really doesn’t matter to me since I pay off immediately whatever I charge because I know I can’t borrow my way to prosperity with a credit card anyway.

Cindy
Cindy
11 years ago

Sign of our economy…I’m working on paying our credit card off. The balance is about $10,000.00, with a credit limit of $21,000.00 and the interest rate was 3.99%. After making a payment last week I check my account online and found a surprise. The interest rate had been increased to 14.99%! Now I’ve had this card for about twelve years, never been late or went over the credit limit and have been adding $50 to the payment for the past year. (more when able) Of course I picked up the phone. I was informed that Citicard is raising the interest… Read more »

JimW
JimW
11 years ago

I have a simple way to not get hosed by the fine print, and/or circumstances. Just don’t use a credit card. It’s so simple, and fits most of the GRS philosophy.

the weakonomist
the weakonomist
11 years ago

I always stay away from any offers that use terms like “as much as” or “as low as”.

@bill in NC – My fiance’s credit card with a big4 bank is currently at 6.99% Don’t ask me how. I was just as shocked as anyone here would be. This is not a teaser rate of any kind, it’s been like this for 7 years.

I use Chase freedom for the cash back (no gimmicks) and the rate is currently 10.99%, though I pay interest.

the weakonomist
the weakonomist
11 years ago

@jtimberman the people that carry balances and let themselves get hit with fees are the people that pay for our cash back offers and for those that do 0% balance transfers.

We will all happily turn in our credit cards as soon as they stop offering the rewards. Everyone here plays their cards (pun intended) right.

John Clark
John Clark
11 years ago

I signed up for a deal with Chase for 2.99% interest and charged the new windows for my house… I have not charged anything since.. Low and behold after one year I get a letter informing me of the new $10 a month fee being added to me account do to my inactivity.. They made sure to say this is a new FEE not interest so that “technically” I was still paying 2.99%. That fee bumped the remaining balance to over 5% and it gets higher the more I pay off… So, DON’T PLAN ON THAT LOW RATE LASTING FOREVER..… Read more »

J.D.
J.D.
11 years ago

All of the “don’t use a credit card” folks have a point! My sympathies still fall heavily in that camp. At the same time, however, I see that for nearly two years now I’ve been able to use a credit card with no problems. I’m not using it to spend more. I’m not carrying a balance. And I’m not doing anything stupid with it. So, I do believe it’s possible to get rich slowly — both with and without credit card use. The key in both cases is to make smart choices with money.

Michele
Michele
11 years ago

We requested a higher limit on one of our cards, and we use that one for cashback on big items. We’ve used it to buy a furniture suite and a car (with the cash ready and waiting in the bank, of course).

Maggi
Maggi
11 years ago

I’ve found it possible to have one credit card for regular monthly purchases, which I pay the full balance off, and others which I use occasionally for larger purchases, which I’ve been able to use at 0% or very low interest. I try to pay a reasonable amount off this balance each month so I can reduce it as much as possible within the interest free period. Usually I can get at least a year of free credit each time, which balances out the transfer fee (if there is one involved). And when I’m coming to the end of my… Read more »

Funny about Money
Funny about Money
11 years ago

Interesting — no, eye-opening! — post. Thanks for explaining these unnerving fine points. I continue to use my two credit cards (AMEX because of the decent kickback and Visa because a few places won’t take AMEX) and pay off the balance each month. Because I never run a tab on either card, the interest rate is irrelevant. But if either of them pulled a stunt like adding an annual fee or capriciously charging $6500 when $350/month payments were arranged (!), I would cancel it so-o-o-o fast! I’m not above going back to cash and checks, and will do so the… Read more »

kelle
kelle
11 years ago

Is it just me or do you think these companys will try to take advantage of anyone with any amount charged on their card that isn’t payed off monthly because they believe the card holder doesn’t know what their doing(with their finances)in the first place and can be duped or taken advantage of? I’m not trying to insult anyone. I’m just making the point that we probably shouldn’t use a credit card if we can’t pay the whole amount every month.
I’m here to learn…
Tell me if I’m wrong.

Justin McHenry
Justin McHenry
11 years ago

Funny About Money, I tend to disagree with the idea that we pay more because credit card companies charge merchants fees for taking credit cards, although many merchants would like you to believe this is the case. First off, there is data that supports the fact that consumers spend more with credit cards than they would with cash, so retailers are more likely to sell more goods to credit card users than they would otherwise. (Maybe you buy more with a credit card than you would if you were using cash?) Plus, cards make it easier for consumers to make… Read more »

Tyler Karaszewski
Tyler Karaszewski
11 years ago

I fall into the “don’t use credit cards” camp that J.D. mentions. Partly it’s just because I failed so spectacularly last time I had several credit cards and I’m wary of getting anywhere close to that again, so I don’t even want to give myself the opportunity. But there’s one other big advantage I find with not having credit cards – simplicity. I try and minimize the number of things that require my attention every month. The fewer accounts I have open, and the fewer bills I have to pay, the less likely that something can fall through the cracks,… Read more »

NatalieMac
NatalieMac
11 years ago

You could avoid using credit cards altogether, but it is nice to have one or two revolving credit accounts in good standing on your credit report.

You can avoid nearly all of these traps by watching your credit card spending and paying off the card in full each month. That’s what I’ve been doing for the past year, and my credit score is up 50 points. One of my cards has a ridiculously high interest rate – over 20% – but I don’t care as I never intend to pay it.

Mister E
Mister E
11 years ago

My credit card company must be like a caring parent.

My credit card carries a zero balance these days but a lifetime ago I lived at the limit and was declined purchases more than once that would have put me over.

Once I tried to charge $21 at Home Depot which was declined and when I checked my balance later that day I had a little under $20 of room. I was declined for under $2 and was SO mad at the time.

Travis @ CMM
Travis @ CMM
11 years ago

I’ve never had a credit card nor plan on having one and this article is exactly the reason why. Managing my money is hard enough to deal with. I don’t need anyone (aka credit card companies) trying to trick me into spending more of it. This is why I recommend never having one.

Troy
Troy
11 years ago

JD: site rocks I am in the “don’t use CC” camp as well, but for different reasons. I realized early on they were silly little traps used to benefit the issuer, not the user. There are lots of opinions regarding CC’s and the debate is heating up because these little plastic wonders are starting to bite back. It will get worse. 78% of househols have a CC. 58% (a MAJORITY)of those households carry a balance, and therefore pay interest/fee charges. The rate of household CC ownership is decreasing, the rate of households carrying a balance is increasing at 2% annually.… Read more »

Elizabeth W.
Elizabeth W.
11 years ago

I’m in the “CCs are okay” camp. I got my first CC when I was 16 and from day one always paid it off in full each month to avoid interest charges. I find CCs to be very convenient- I don’t have to carry a lot of cash with me and it’s handy when traveling, particularly in some foreign countries. I also like knowing if for some reason I lose the card, I won’t be responsible for any fraudulent charges that show up. That won’t happen if I lose my cash- if that’s stolen, it’s gone. Plus, the company is… Read more »

Sarah
Sarah
11 years ago

I think you have to recognize that as bad as it can be if a company mischarges your credit card, it can actually be far worse if it mischarges your debit card. Imagine if the person with the CT scan issue above had had their checking account hit for that amount. They would be out that money until however long it took to resolve the situation–and most people would have a hard time managing short-term with $6500 suddenly yanked from their account. A similar situation with actual fraud. Neither of these situations is any fun whether you used a debit… Read more »

S
S
11 years ago

ITA, #34 Sarah – try renting a car or booking a hotel room with a debit card — our CC are part of emergency/evacuation kit. A hotel/car rental hold on a debit can be as much as $500 a day.

On each monthly statement is the activity, due date, pymt amount, the balance and the interest rate. Just yesterday, we called and had the interest rate on a card cut almost in half (18.99 to 9.84%).

Vic
Vic
11 years ago

An additional note on the “any time for any reason”: keep an eye on your due date. I’ve had two different cards silently move my due date up by three days after a balance transfer.

thomas
thomas
11 years ago

I love my credit card, but I’m also smarter than the average customer. I think we need the human equivalent of cattle prods (Tazer?) and be able to use them in a reasonable matter on those who fall under the spells listed above.

Jason from MoneyTheory
Jason from MoneyTheory
11 years ago

It is amazing how the credit card companies give you a credit card limit, but approve purchases beyond that! Seems like they do it just to make the over limit fees!

Avistew
Avistew
11 years ago

Nice post. Reading and understanding what the fine print really means is always useful. I’ve never really understood credit cards to begin with. We don’t have them here in France (only debit card, including debit Visa and Mastercard that work on the Internet and abroad). It seems to me, credit cards are pretty much a way to make sure that if you can’t afford something, you have to pay MORE for it. It sounds crazy. It’s like a tax on the poor or something. I realise they can have advantages in some cases, but I’m glad that I have never… Read more »

Vims
Vims
11 years ago

They are wonderful tools and most of the article is about being aware of the interest charges. My stratergy is to use the interest free period and clear the balance EVERY month. ie. Never pay any interest, ever. That way it does not matter if they want to charge me 50% interest. They’ll never get a cent because I diligently avoid the interest.

Gail
Gail
11 years ago

I have two Citicards, one at 16.99 APR and the other at 6.24 APR. I asked if they could lower the 16.99 and no, not like that. I could request a lower rate, and when your card expires, cancel your card. That’s in your fine print also. Told them I will discontinue the 16.99 and use the other one. I will just store the unused card and file it away to keep up the credit history.

Vanessa
Vanessa
11 years ago

“Since nearly 60% of users pay interest, it is safe to conclude that a majority of users are “losing” at the CC game.” I’ve paid credit card interest but I certainly don’t consider myself having “lost” for doing so. When I think about my credit card debt and what it’s allowed me to achieve in life, I feel like I’ve won actually. I received my first credit card when I was very young, but I still recognized that anything charged on a it was a LOAN which had to be repaid by a certain date and I would pay extra… Read more »

Ken at Social Fix
Ken at Social Fix
11 years ago

There is too much competition in marketing credit and it has become too vicious. The credit rates charged are excessively high when investment interest returns are historically low. There could be the argument that their costs are too high but that’s because they market them too heavily causing too many defaults.

Consumers need fairness and basic government protection in all their business transactions but this seems to be lacking more with each passing year.

bigpimpin
bigpimpin
11 years ago

Amen, jtimbermann!
Everyone repeat after me:
“We will not use credit cards. EVER.
We will instead save our money.
The millionaire CEOs of CC companies don’t NEED the interest we pay, they want it. They have been fleecing me to get it.
No more.”
Repeat as necessary until a mind/behavior change has occurred.

Matt Keegan
Matt Keegan
11 years ago

Very good tips, indeed! I still use credit cards but am careful to pay them off monthly. In a few cases, I pay them off over time (business) but I make sure that I have the lowest rate possible and other decent terms.

Al Pennyworth
Al Pennyworth
11 years ago

To make the statement “We will not use credit cards. EVER.” is impossible. An example: on a recent trip, I attended a conference with a co-worker who never uses credit cards. Much to his surprise, the hotel charged his debit card over $2000 for the pre-approval fee. For anyone thinking this is a rarity, think again, it has happened more than once. An example where a credit card can be of a benefit: I have friends that have a Visa Disney rewards card. Every month, they pay all of their bills (mortgage, electricity, gas, water, cable, etc) with this credit… Read more »

emanon
emanon
11 years ago

I agree if you’re irresponsible or reckless, then don’t use credit cards. However, credit cards can actually make you money if you use them properly. This year I made about $1500. The year before it was over $2000. I have never paid a penny in interest ever, in using credit cards for over 20 years. I have also never paid any fees. I get 5% cash back on gas purchases. No tiers, no limits, no games. It’s auto-credited to my account every month. I also get 2% back on groceries the same way. I get 1 – 1.5% back on… Read more »

Frank
Frank
11 years ago

I can’t get enough of the people who like to chant “I never use a credit card, ever. You must be stupid to use one and pay the interest.”

Thank you so much for your advice. How does this apply to the debt I already have? Your air of superiority does not seem to have reduced my interest rates or my balances. Please, tell me more about how your ego affects my credit score.

Steven
Steven
11 years ago

I’m very good about finances. Don’t carry a balance on any of my 3 cards, except one 0% that I used to get married last year (and have plenty of money to pay it off before I have to on 4/30). I make use of no payments – no interest deals even when I have the money, because I get lots of interest on savings. I get lots of cashback on my Discover card. I say that to preface this- I screwed up with Discover and scheduled a payment out of checking instead of savings. Discover is usually pretty good… Read more »

Don
Don
11 years ago

I see some upstream talk about the difficulty of getting rental cars and/or traveling with debit cards. The reality is that both rental car companies and credit card companies do their level best to talk up the hassles but they’re really not that bad. Do they encumber a few hundred bucks? Sure, but one of the nice things about deciding to only pay $1 for $1 items (as opposed to the $1.10+ that financing them costs) is that it’s way easier to have some extra money in your account. Rental car companies know the same thing that credit card companies… Read more »

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