Universal Default Clause
One of the most insidious credit card traps has to do with banks’ Universal Default clause. This clause allows banks to increase interest rates on credit cards if you make late payments to other accounts unrelated to your credit card such as utility companies, for example. Currently, there is legislation that will prohibit these excessive fees incurred by banks.
0% APR
Perhaps you have received dozens of credit card offers in the mail that invite you to apply for a credit card with a 0% APR. It is important that you read the fine print as this low rate usually expires within six months.
Interest Rate Increases
Many banks have been sending out notices to credit card holders stating that interest rates will be increased. While you may be paying your bills on time, they have nonetheless changed the terms and you can either agree or close your account. The rate increase, in some cases, has been as much as 13% and the bank has the ability to apply the increase to the entire balance, and not merely to the new charges
Late Fees, Annual Fees, and Payment Fees
Making a late payment on your credit card can increase the interest rate as much as 23%. Some banks charge an annual fee for their credit cards. They can cost up to $50.00 a year. If you make credit card payments online, there may also be a fee of up to $10 per month.
Cash Advances on Credit Cards
Banks usually send out notices with blank checks to allow for the consolidation of other debts. This is considered a cash advance and has a higher interest rate. Furthermore, since you now have the cash advance interest rate and the regular credit card interest rate, most banks will only apply payments to the cash advance or lower interest rate before it is applied to the remaining balance. Thus, the remaining balance on your card will continue to multiply.
It is important, therefore, to read the terms and agreement section of the credit card before you apply. While it has been said that the language can only be understood by lawyers, you can still ascertain what penalties, fees, and other charges will be incurred using this card.
Look for these particular sections:
* Annual Percentage Rate (APR) for Purchases
* Other APRs
* Variable Rate Information – See Important Notice Regarding Change in Terms
* Annual Fee
* Grace Period for Repayment of Purchases
* Minimum Finance Charge
* Transaction Fee for Purchases
* The Default Clause listed under Summary of Terms
* Late Payment Fees
* Cash Advance Fees
* Fees for Issuance or Availability
* Method of Computing the Balance for Purchases
* Non-Usage Fees
* Fees for Purchases Made Outside the US
It is widely agreed that most credit card terms are ambiguous at best. But it is still important to learn as much as you can by reading the terms and agreement section so that you will be able to avoid any traps in the future.
