Even though credit card companies are required to inform you of your interest rate, payment due date, applicable fees, and a host of other caveats, your contract with an issuer – commonly called a Credit Agreement – is actually a flexible document. This works in your favor in some cases (see #4, #5, and #8 below), but works in the issuer’s in others. These credit card secrets can wreak havoc on your financial life.
The worst part about a credit card secret is that it can impact you at any time. Issuers can decline or even cancel your card, raise your interest rate with minimal notice, or start charging fees, all completely legally. Plus, although all fees must be disclosed, that doesn’t mean that they have to be disclosed in plain language, or even in plain sight. Find out about these sneaky fees and when they are applied check out my guide to credit card fees.
On the other hand, this flexibility can benefit the consumer. I was fortunate to learn early after receiving my first credit card just how flexible credit card companies can be – including waiving late fees. I called my card issuer once when I forgot a payment; a car accident early in the month and the resulting hectic days involving getting a rental car and working with the mechanic threw me off schedule. Not only did they waive the fee, but they offered to extend my payment date.
The Top 10 Credit Card Secrets
These credit card secrets really shouldn’t be a secret, which is why I’m bringing them out into the open. Watch out for these sneaky practices:
1. We can cancel your card at any time. Even though you have an agreement with the credit card issuer, the issuer can cancel your card at any time. If you have a history of late payments, high credit utilization, or even if your annual income decreases, the issuer might take a second look and decide to bar you from further credit – even if you’re below your agreed credit limit.
2. We can also decline you at any time. Even if you have more than enough left on your credit limit to cover a purchase, a card issuer can choose to decline the card when it is submitted as payment. If they’ve had fraud problems at a certain retailer, a purchase is higher than typical, or you’re even just out of your usual local area, a credit issuer might not accept the charge, leaving you stranded at the register.
3. Your fraud protection isn’t as good as you think. There are all types of limits that issuers place on fraud protection, especially the protections that are included free with the card. If you don’t report fraud within a certain time period, or if you verbally authorize someone to use your card to run to the grocery store and they stop at Tiffany’s on the way, you could be on the hook for the charges.
4. Late fees are negotiable. If you have a history of on time payments and miss one payment because of a busy month, most issuers will just waive the late fee if you call and ask them to (nicely, of course) as soon as you realize you missed a payment.
5. You can get a better deal if you ask. If you have a high credit score, or an average credit score but a long history with a particular credit card issuer, chances are very good that the issuer will increase your credit limit, lower your interest rate, and throw in additional benefits. The key is that you have to ask for these perks; telling the issuer about other deals you’ve seen or thoughts you might be having about cancelling the card will give you added bargaining power.
6. There’s no limit on the interest we can charge. For the first year you hold a new card, the Credit Card Accountability, Responsibility, and Disclosure Act prohibits issuers from raising your interest rate, but after that, the sky’s the limit. As long as the interest rate does not break your state’s usury laws, an issuer can raise the rate at any time after the first year.
7. Two cycle billing will put you further behind. Two cycle billing is the practice of charging two months’ interest on one months’ balance when you usually pay in full, but the last payment does not cover your balance in full. This happens if you switch from paying in full to carrying a large balance.
8. You can pay more quickly at a branch. Although credit card issuers prefer to receive payment online, if you pay your balance at a branch location for that issuer, you don’t have to pay a convenience fee and your payment is usually credited the same day.
9. When introductory rates expire, the higher rate is retroactive. If you sign up for a teaser rate with a credit card, you had best pay the balance in full before the teaser rate expires. In many cases, the higher rate that comes in once the teaser rate expires is retroactive to your first purchase, meaning you can be charged interest over 6 months’ or more worth of purchases – all at once.
10. You might not have a grace period. Not all credit card issuers calculate interest on a monthly basis. Those that calculate on a daily basis will charge interest for purchases made during a billing cycle whether or not you pay in full and don’t carry a balance into the next month.
Avoid becoming a victim of credit card secrets. Your first step is knowing how to read and understand your statement, and reading this article on understanding statements will help arm you with the terms and explanations you need to know. Next, read your credit agreement carefully to understand how and when the above credit card secrets might sneak up on you – and switch cards if you foresee a problem.
Have you been a victim of any of these credit card secrets? Share with us in the comments section below.