The Dirty Secrets of Credit Card Companies

The Dirty Secrets of Credit Card Companies

Credit card companies profit from their customer’s miseries… It is sad, but it all comes down to the fine print in the agreement. In this post I cover 8 ways credit card companies end up getting more out of you than you bargained for.

If you manage to avoid all the pitfalls of credit cards (carry no balance, pay no interest, pay no annual fees, maximize rewards) you earn the title of “dead beat” according to the credit card companies. This is one label I’m proud to carry!

1) Do you think you have a fixed rate? Maybe you do, maybe you don’t:

The annual percentage rate, or APR, is the interest rate you pay annually on your outstanding credit card balance. If your interest rate is fixed you might think it always stays the same, but this is not true. The fixed rate is the same for the first year when you get the credit card, but after one year it may change. You have to read the fine print because oftentimes cards come with lower introductory rates. Also if you are late making a payment or exceed your balance your rate will go up.

Until 2009, users were informed about the interest rate changes 15 days before the deadline. Since the Law on Disclosure and Responsibility for Credit Cards was passed, that deadline has been increased and now they notify you 45 days before the rate change.

2) You pay interest, potentially LOTS of interest:

Did you know the credit card companies are out to make money off you? The main way they do it is by charging high rates of interest. Has it ever happened to you that you bought something for a certain amount and later the amount on your card was higher than what you originally paid? If you buy something on a credit card, know that your balance will grow if you don’t pay it off at the end of every month. This interest is called compound interest, which is good for the credit card company, not so good for you. If you want to avoid paying interest on a credit card, buy only what you need and pay it off each month.

3) Credit card rewards aren't as useful as creditors want you to think:

Credit card companies regularly organize discount programs where you can spend your points and get additional bonuses. Most of the places on their lists are places I’d never shop at. The best kinds of rewards are frequent flyer miles (if you travel often) or a simple percentage cash back (typically 1-3%). It can take a long time for rewards to build up. If your budget is $2000 per month, 1% of that is only $20. Just make sure the card doesn’t have an annual fee, which would claw back some of those rewards.

The only way rewards work out is if you have a card with no annual fee and you pay it off each month. For more tips see our post on getting the most out of credit card rewards.

4) Do you need balance transfer checks?

Balance transfer checks can do more harm than good. Before you decide to use them, you should think carefully about whether they actually benefit you. The fee for doing balance transfers is as much as 5% of the amount you write on the check. So to pay off $1,000 of debt on card A using a check from card B will cost you $1,050.

This strategy only makes sense if you are using the check to pay off a balance on another card at a much higher rate. Also see point #1 again about rates changing to understand if the new card’s rate will be low long enough to justify the move. Balance transfer checks often have introductory rates that rise after a certain period of time. If you know you can pay off the balance during the introductory rate that could be a good plan.

5) Speaking of no limit, the "no limit" card doesn't mean what you think it means:

You must have heard that there are credit cards without limits and wished you could get one. The secret of this card is that it is not unlimited at all, because that limit is determined by the company that issues the credit card. You don't even know that limit and you can spend thousands of dollars without even dreaming that at some point you will receive a notification that you have reached the limit on the card and then you will be surprised.

How do people usually get these no-limit credit cards? It is taken into account

  • your credit history
  • income
  • previous balance
  • payment history
  • how long you have had an open account

If you get a credit card without a limit, know that it still has a certain limit that only the credit card company knows.

6) Your grace period might be shorter than you think:

Surely most people don't know what a grace period is? It is the period between the purchase and when the credit card company starts charging you interest on that amount. With most cards it is one month, or a full statement cycle. So as long as you pay off the card each statement on time, you won’t be charged interest. But you still need to watch out. Some credit cards do not have a grace period. You can find out if your credit card has a grace period by reading the small print on the card. That's why you need to be careful when you shop, because you may start collecting interest on your purchases right away if your credit card doesn't have a grace period.

7) Traveling (or just shopping online)? Plan on paying a foreign transaction fee:

If you are someone who likes to travel or buy online, you should know that every company that issues credit cards will state in the contract whether they charge fees for purchases abroad (whether you travel or buy online). If you do not do this, you will receive high fees for using a credit card abroad, because if you buy online, the fee for the purchase is 3% of the cost of your transaction. Those who rarely travel or shop online may be surprised when they get high card charges and this is a great reminder for them to contact their credit card company to find out if and how much they will be charged if the card will be used abroad. If you are going on a vacation to a different country you may want to open a credit card account that has favorable foreign transaction fees.

8) Your credit card company doesn’t have to work with you on a debt settlement plan:

If you get behind on payments, your credit card company is not your friend and isn’t there to help you get out of debt. Many people make the mistake of trying to work with their credit card company to settle their debt. A better way to settle your debt is to contact a non-profit credit counselor. If you are unable to pay back your debts for legitimate reasons (such as a major health condition, disability, etc) speak to a bankruptcy attorney.


Conclusion: Now you know a few secrets of the credit card business and how to be a real "dead beat". Hopefully this helps you keep more money in your own pocket and not theirs!


The post The Dirty Secrets of Credit Card Companies is part of a series on personal finances and financial literacy published at Wealth Meta. This entry was posted in Personal Finance
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