Three Credit Card Company Tricks to Trip You Up
Even though credit cards can be excellent tools for your financial life, it’s no secret that credit card companies screw people in an effort to make more money. The credit card tricks they use are also incredibly sneaky.
Prior to the CARD Act of 2009, credit card companies could solicit college students on campus, increase your interest rate without notifying you, retroactively increase interest rates, charge exorbitant fees and calculate interest on both the current and previous balance.
While those credit card tricks are now outlawed, it doesn’t mean credit card companies haven’t found other ways to screw consumers. The good news is, as a consumer, knowledge is power.
Here are some of the the credit card tricks to look out for as you use your credit.
Randomly raising your credit limit.
Credit card companies make plenty of money from processing and transaction fees, but they make even more money when consumers have to pay interest on existing debt.
Since they can no longer raise your interest rates without notifying you (sort of) it looks like they have found other credit card tricks to get the same effect.
For example, they can raise your credit limit in hopes that you will overspend and have to pay them interest. It may seem like a good deal (who doesn’t want more credit line?!), but beware!
If you have a lower credit limit and they see you using a big chunk of it, they may increase your limit because they see you like to spend — and hope the non-interest income (fees) and interest are greater than your likelihood to not pay them.
Fees, fees and more fees.
Not only will a credit card company raise your rate without notifying you, they may also try to charge you a fee for it. This is probably one of the sneakiest credit card tricks in the book.
“The really unfortunate thing is that a few issuers even charge a fee when they raise your limits,” notes Matthew Shulz, Senior Industry Analyst for CreditCards.com.
“They’ll raise it $100 without you asking and charge you a $25 fee for the increase. Then, the only way to avoid the fee is to reject the increase. Gets messy.”
Another sneaky fee is when they promote a 0 percent interest balance transfer card for a set period of time, but charge you 3 to 5 percent on the balance to make the transfer. Depending on the transfer fee, the balance transfer card may not even be worth it.
If you go to the CFPB website and look at the database of consumer complains, there are countless stories of individuals who ended up paying interest on their balance transfers in spite of the 0% promotional offer.
Now let’s talk about credit card tricks and late fees. Although the Consumer Finance Protection Bureau sets a limit for the cost of late fees, credit card companies still find ways around it. For example, if you have a 0% introductory APR it could be waved because of a late payment. Your current purchases could also start accruing interest.
They can still raise your interest rate under certain circumstances.
The CARD Act has exceptions to the rule that states credit card companies cannot raise your interest rates without notifying you. And you can bet credit card companies are taking full advantage of it when they can.
Here are some of the exceptions that would allow a credit card company to raise your interest rates:
- Your promotional offer ended. Those 0% introductory APR deals don’t last forever. After the promotion ends, they can start charging interest. Another way this may show up is with retail store credit cards which offer you an X% discount if you open a card. When looking through the CFPB database, you see countless complaints from people with retail store cards who keep being charged $2.00 in interest fees even after they pay their bill in full.
- Your credit score dropped substantially. Credit card companies periodically check your information. If they see something they don’t like – like your score dropping – they can charge more in interest. The good news is this is one of those cases where they must give you 45 days advanced notice.
- You’ve had your card for more than 12 months. Again, they’d have to give advanced notice.
- Incorrrectly applying payments to balances. One consumer on the CFPB database noted how Chase kept applying their payments to the balance that was not accruing interest instead of the one that was.
- You have a variable rate card. A variable rate card is a credit card where the interest fluctuates based on the interest rate set by the Federal Reserve (also known as the prime rate). If the prime rate goes up, your interest probably does too.
- You’re more than 60 days late on payments. Paying your card late is never a good idea, but it gets really complicated after 60 days. First, credit card companies would be within their legal right to significantly increase your interest. Second, if you get a penalty APR it could apply to both past purchases and new ones. You also wouldn’t get a decrease in the APR until you’ve made your payments on time for at least six months. This is one of the most difficult credit card tricks to climb out of, and it’s not a secret as to why. One consumer on the CFPB database noted how they could not seem to pay off their balance after getting continuously charged with fees after missing a payment. This was even after the consumer thought they’d paid everything off in full.
Are there more protections in place for consumers than their used to be? Yes. However, there are still plenty of credit card tricks that can screw you if you’re not careful. Make sure to always read the fine print, make your payments on time and ask questions if you have them.