The fact is, banks don’t issue credit cards without trying to find a way of making money on them. This means that your well being is not always on their mind, and you have to realize that their focus is on their bottom line. Often times credit card companies can be downright sneaky when looking to get more money out of you. This leaves you looking around trying to figure out what just went wrong. Often times, this can happen with an introductory rate and other issues. The changes in credit card laws that have come up just make it worse as some companies have already come up with new ways to make you pay.
First off, what companies will do is stick you with a minimum variable interest rate. A variable interest rate is one that is either based on the federal fund rate or the prime rate. When the government decides to lower the rate, it is to help out the consumer. What a minimum variable interest rate does is prevent your interest rate from falling below a certain amount. When this occurs, the company makes a higher percentage off your monthly debt than first decided. The best way to avoid this is to pay off your credit card amount in full each month.
Next, you need to look at your grace period. The grace period is the amount of time after you place a charge on your credit card and the time when it starts building interest. To make additional income, companies will give an extremely short grace period so they can start charging interest almost immediately. The one change that has come in place with the new Federal laws is that companies must mail your statement out so that you receive it before these fees can be added. When trying to avoid these fees, online payments can come into play to help get that payment in on time.
Many credit card companies have shown that they use a late fee that changes on the balance you have. Often times, companies will levy the full late fee with a balance of just $250 on the card. The only way you can avoid this fee is by not paying late. Companies make large amounts of money each month on late fees. Make sure to mail out your payment on time or setup automatic payments. Remember, electronic payments can take a few days to process, so waiting until the last day online can still get you in trouble.
Here is one big trick that credit card companies use: Companies can charge large amounts in terms of inactivity fees for cards that have not been in use. Many people know that companies will often close a card that hasn’t been used, but they didn’t know that they can also be charged. This time frame for getting charges for inactivity usually falls around the range of one year. On top of this, many times people will forget about the card, and they start getting late fees without even realizing. Now you can look at a card that hasn’t been used in two years, and it will have a year’s worth of late fees on top of the inactivity fee. That will never help your credit score.
The best way to make sure that this never happens is to make a small charge on the card each month. This can be a tank of gas or another item you purchase, and then simply pay it off that same month. Make sure that you pay it within the grace period so you do not have to pay an interest fee. Also, make sure that you read your credit card statement each month. You might have forgotten about a payment or a charge you made.
The last thing we have to look over is the fact that you should always keep an eye on your varying interest rates for different types of charges also. Most times taking out cash from your card will have a much higher interest rate than normal charges.
Credit cards are a necessary evil for most people. Most of us need to have them as an emergency fund or to get us to our next pay check. What we are trying to show here are the less than up and up methods that many credit card companies use to make money off of your credit card use. Stay informed, keep in touch with your bills and interest rates, and stay committed to using your card wisely and staying out of debt.