7 Secrets Credit Card Companies Don't Want You to Know

×
Using a credit card.
Getty ImagesYou may love your credit card, but once you're hit with a rising interest rate, you'll find out it may not love you back.
By Paul Sisolak

If you think about it, you've got a close, intimate relationship with your credit card. The both of you have been inseparable through each daily transaction. You treat it right by paying off your monthly balance on time. You know all your card's important details, such as its credit limit and interest rate, right down to memorizing every reward and benefit. You might even know your card number by heart. Unfortunately, there's some bad news that could be financially heartbreaking:

Your credit card company may be holding out on you.

The fact is, you've been kept in the dark about several secrets because your financial benefit comes at your card issuer's financial loss. Read on to find out some of the things your carrier doesn't want you to know.

1. Fixed rates aren't really fixed. Issuers can raise your APR whenever they choose. This information isn't necessarily a blatant secret, but it'll be hidden so deeply in the fine print of your cardholder's agreement that card companies are hoping you miss it. Commonly, we're enticed to sign on with a fixed introductory interest rate that may change at the company's will. You have the right to be notified 15 days before a potential rate increase, but to stay on top of them, check your mail; you'll receive notifications in a thin, discreet white envelope.

2. One late payment ... two penalties. In a perfect world, one late payment equals one penalty fee; on-time payments equal zero fees. In this imperfect world, you can be penalized with two surcharges on one delinquency, and you won't know about them until you've been charged. These can come in the form of a late fee (up to $35), and a penalty rate -- a permanent interest increase that can jack up your APR to as high as 29.99 percent! The 2009 CARD Act sought to place limits on these increases, though the details aren't widely known by the average cardholder.

3. Twice the interest in one month. Another one-two financial punch comes in the form of a legal maneuver which allows your card company to impose two months' interest for just one month of late balance payments. For example: You're charged twice the interest for a partial balance payment in October even though you paid on time in September. Called double-cycle billing, the card issuer looks at your average daily balance over two consecutive months and charges you higher interest based on the month you carried a higher balance. It's not even the interest that makes this a problem, but the principle of being punished for good financial behavior.

4. Disgraceful grace periods. How many of us who've made big-ticket purchases have been thankful for the grace period? Say you charge $1,000 to your card and pay $250 by the due date to hold over your creditors. Most cards carry grace periods up to about 25 days, allowing you to pay off the remainder, interest-free. But in the spirit of profiteering, many providers are reducing the grace period to just 20 days, while some are doing away with them altogether. That means you'll get charged interest on every purchases, even with timely repayments. Avoid this fall from credit grace, and check how many grace period days your card company offers.

5. No card limits -- just with limits. Many consumers in possession of a no-limit charge card discover they have a revolving spending cap -- let's use $5,000 -- but only learn of it after racking up $7,000 in purchases, leaving them stuck with a remaining $2,000, plus interest, to pay off. Why is this so? Your card company advertised your plastic as no limits, but it's really set at a no preset limit, based on your own month-to-month spending behavior and habits. Before snatching up a no-limit card, ask your provider if the limit is predetermined, and be careful not to spend beyond that amount.

6. Minimum payments to the maximum. It's the nature of the credit beast: The longer you stay in debt, the more interest credit card companies can charge, and the more money they make. In the past, card holders had a 5 percent minimum monthly payment. This became problematic for creditors because people were motivated to pay off their balances more quickly. So they lowered the monthly minimum to 2 percent. But now, with smaller repayment requirements, we're prone to spend more and accrue more debt each month. Experts maintain that this move by card companies adds thousands of dollars in interest, creating a repayment schedule that could last years, if not decades.

7. Late payments to any creditor can raise your APR. We hope that our creditors aren't wishing us to slip up on our repayments, but if there's one thing to take away from this article, it's to be on time paying down your debt. One late or partial payment, be it your credit card, car or mortgage payment, can jack up your total APR across each line of credit in your name. Can you imagine your auto or home loan going from 3 percent to 29 percent? Just like we've got the CARD Act, creditors have something called the universal default clause, which insures them against people who pose a credit risk. (Not like they need it.)

Paul Sisolak writes for GoBankingRates.com, a source for the interest rates on savings accounts, CDs, mortgages, auto loans and more.


Increase your money and finance knowledge from home

Professional Vs Do it Yourself Investing

Should you get advice or DYI?

View Course »

Understanding Credit Scores

Credit scores matter -- learn how to improve your score.

View Course »

Add a Comment

*0 / 3000 Character Maximum

4 Comments

Filter by:
STAN

2. One late payment ... two penalties. In a perfect world, one late payment equals one penalty fee; on-time payments equal zero fees. In this imperfect world, you can be penalized with two surcharges on one delinquency, and you won't know about them until you've been charged. These can come in the form of a late fee (up to $35), and a penalty rate -- a permanent interest increase that can jack up your APR to as high as 29.99 percent! The 2009 CARD Act sought to place limits on these increases, though the details aren't widely known by the average cardholder.This one is really importantbecause it can increase your debt tremendously and you never see it until it slaps you in the face.Keep a really close eye on your actual balance.Also remember that for every $ you charge you pay back $2-$4 and that can add up tremendously very very quickly and that is first hand experience.
You are far better taking loan from a reliable banking institute than a credit card because loans are usually fixed rate.Think about it they are alwaystrying to get you to get a credit card.

August 17 2014 at 4:01 PM Report abuse -2 rate up rate down Reply
socioeconomist1

I don't even know why I own a credit card... I never use the damn thing. I got a bunch of free stuff in a facebook game for signing up to get one.

August 16 2014 at 2:04 AM Report abuse -2 rate up rate down Reply
1 reply to socioeconomist1's comment
mgh406

You probably lowered your credit score in the process!

August 16 2014 at 1:11 PM Report abuse -1 rate up rate down Reply
Sherrie

Have not carried a balance in years. Schedule the payment online as soon as the month's statement has arrived (via email,usually the day after closing date) and well before the payment date, deducting it from the chackbook as though the check was mailed that day, even if the payment isn't scheduled for another fifteen days. Will pay off mortgage in the next two to three years. THEN I will save for a car to replace my old one, and will be thrilled to pay cash for it. Dave Ramsay ROCKS!

August 15 2014 at 7:28 PM Report abuse rate up rate down Reply
1 reply to Sherrie's comment
merstockgto

We have been debt free for decades. Pay cash for everything and no credit card debt. Always pay my credit cards in full when I get the bill. Have been retired for over 3 years. I would hate to have a mortgage payment, car payments and credit card debt at this stage of my life.

August 16 2014 at 12:36 AM Report abuse -1 rate up rate down Reply
jj2301

Remember, these practices are all here *after* King O and his band of merry men gave us the Credit Card Reform Act. They allowed these loopholes, so if you're gonna gripe about the companies that engage in these practices, start griping at the leaders who wrote the laws that allow it.

August 15 2014 at 12:09 PM Report abuse -10 rate up rate down Reply
1 reply to jj2301's comment
gee.effwye

So the article is false?

August 15 2014 at 6:41 PM Report abuse -4 rate up rate down Reply
rohlemeyer

"7 Secrets Credit Card Companies Don't Want You to Know": I thought you were going to give us "one weird trick" or something about "Credit card companies hate this." Gotta get all the advertising buzzwords in there!

August 15 2014 at 10:08 AM Report abuse -3 rate up rate down Reply
jdykbpl45

Stop whining.

August 15 2014 at 9:24 AM Report abuse -5 rate up rate down Reply