Paycheck Chronicles

Be Careful of Credit Card Catches


If you are going to use credit cards, it is important to have the best card for your situation.  Unfortunately, it can be hard to compare various credit card offers because there are often so many details that can be written in very small print and hard to understand.  Look out for these common catches that may obscure the terms of the overall credit deal.

Low Interest Rates

Promotional interest rates can be a great thing, but you have to truly understand how they work to be sure that you don't get caught with a surprise interest rate hike.  Determine how long the promotional rate will last, and what non-promotional interest rate will take effect when the promotion term is over.

Also, ask what conditions will cause the promotional term to be revoked.  In most cases, a late payment will end the promotional rate, as will any activity that pushes you over your credit limit.  Credit card companies also monitor their customer's credit reports to see if they are paying their other bills on time.  In a scenario called "universal default," a creditor can increase the credit limit on a card that is being paid on time on the basis of the late payment of other bills.

Balance Transfer Fees

If you are considering consolidating debt, find out about the fees charge to transfer your balance from one credit card to another.  In many cases, the 3-5% balance transfer fee will eat up any savings in interest.

The balance transfer fee can be a double whammy if you transfer a balance to a new card without considering the impact of the balance transfer fee on your credit limit.  Say you have a $1,000 credit limit on a credit card with no balance, and you transfer $975 of debt from another credit card.  If that $975 comes with a 4% balance transfer fee ($39), you now have a new balance of $1014.  You may then be charge an over-limit fee, and you may lose the promotional interest rate.  Ugh!

Over-limit and Late Payment Fees

While it is always right to stay under your credit limit and pay your bills on time, sometimes mistakes happen.  Look for a card with no or low over-limit and late payment fees to limit your costs if you run into a problem.

Keep On Top Of The Terms

Many people, myself included, regularly throw out the little notices that they receive from their credit card companies, in the regular mail or through email.  It is important to always read whatever the credit card company sends you, as this is how they notify you of changes in the terms of your credit card.

On the same note, be sure to read the original terms when you first get your credit card.  If you didn't read yours, and you've thrown them out, most online account access programs have the terms listed somewhere at the website.  Find them, and take a quick look.  Knowledge is power!

The judicious use of credit can be a great thing for cash management and convenience.  It is important to pick the right credit card, and knowing which card is right means that you have to understand what each card is offering.  The details are important, so dig down and find out the information you need to make a great decision.

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