How Credit Card Companies
Play 'Gotcha'

It's almost impossible to get along today without using credit cards. They're convenient. Compared to carrying cash, they're relatively safe. If you pay your bill in full each month, they can cost you nothing but the postage to pay your bills.

But it's not a one way street. There's a reason why the banks are so aggressive in trying to get you to use their card. They make a bunch of money on credit cards.

We all know that they make money by charging you interest on the unpaid balance. But, did you know that they also make a lot of money in hidden tricks that are buried in the fine print of your credit card agreement? Let's talk about some of the ways that banks play "Gotcha" with credit cards.

One of the most common ways that credit card companies can legally take your money is by playing with the grace period on your charges. Most banks typically allow for a 'grace period' on your account. If you charge something in the middle of your billing cycle, no interest is charged if you pay the bill by the due date. The logic is simple. It's really hard to pay a bill before you've received it!

Now for the newest wrinkles. Some credit card offers, mostly for 'gold' cards, allow for no grace period. In other words, if you charge an item on the 15th of the month and bill is due on the 30th, you automatically will be charged 15 days of interest at the stated interest rate. Pretty slick, huh?

OK, so you threw that gold card offer away. You're still not exempt from billing date issues. Suppose you fail to pay your bill in full one month. Maybe you were on vacation or had a temporary emergency. You'll make it up next month. But, if you charge something in the middle of your billing cycle now, you won't be given any grace period. It's fairly common practice to eliminate grace periods for accounts with an open balance. That's another fine reason to keep your credit card account fully paid each month.

Even if you pay your account in full there are still ways that the banks can manipulate the grace period to their advantage. Some have shortened the grace period from 25 to 20 days. If your company does this, give their customer service number a call and ask for the standard 25 day grace period. Many companies will change back just by being asked.

Another recent change has been that some banks actually 'back date' charges to the date that the purchase was made. That means that the bank is charging you interest before they even paid the store on your behalf! This is usually done only on accounts that carry an outstanding monthly balance. Generally, your only solution is to close and move your account.

We've all received promotions offering lifetime warrantees and special discounts if we use a specific credit card. Usually they come in big bold letters that leap off the page! But some card issuers are tricky. After an initial period, usually between three and twelve months, they drop the special benefits. Along with your usual monthly bill will be a small notice. In print that requires a magnifying glass to read you'll be informed that your card no longer offers special benefits. Most people don't even read the notices. They go merrily on using the card thinking that they're earning a discount or whatever. Your only option here is to get a new card offering the special benefits.

What about annual fees? An annual fee of $50 is common, but not irreversible. Many issuers will waive the fee if you call and ask. If they won't you can always cancel the card and apply for a new one that is 'free' for new accounts.

Surprisingly, interest rates are often negotiable. You'll need to have a good payment record to back up your request. It also helps to have an offer from a competing company with a lower rate that you can use as leverage. But it's worth a try. A phone call is all you're risking.

Cash advances are especially prone to 'special charges'. Some banks charge up to 2.5% of the amount of the money you get as a 'transaction fee'. Beside the fee, you'll be charged interest from the day of the cash advance. So if you're paying 18% annually and you take an advance for just two weeks you could be paying 3.25% in interest and fees. Almost like loan sharking!

One other area is not misleading, but sure is expensive. Many banks push their cards by promoting the low monthly minimum payments. What that means is that you owe them more money and are accruing interest charges on a greater amount. The more you borrow, the more they make. It might seem like they're doing you a favor, but those interest payments can be a cruel master.

What's the bottom line? Well, I guess it's that you must take control of your situation and beware of those who would try to fool you. Much as we don't like it, reading the fine print is necessary to protect yourself. Looking at the credit card agreements and inserts that come with your statement is essential.

Sometimes it's hard to look out for yourself. But if you don't do it, who else will?

Do you have a time or money saving idea that wasn't included in this article? Please send it to tips @stretcher.com. We get the best ideas from our readers!

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