Clark Howard

7 things credit card issuers don't want you to know

I’m not one of those people who thinks that credit card companies are inherently evil. Credit card companies are businesses and their goal is to make a profit for their shareholders. Hey, that’s okay. It’s capitalism at work.

But to make a profit, they sometimes cross the line between being transparent and being a little sneaky, especially when it comes to the fine print. It’s usually easy to find the big things, like the APR and the annual fee, and that’s as it should be.

But all the rest? It's like putting together a bookcase you bought from IKEA without getting any directions at all. And that can be a difficult task even with the directions.

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You’re the boss!

You have more power than you know. Think of it this way: The credit card issuers work for you, not the other way around. And if you have an excellent credit score, then you're truly in control of your credit destiny.

Don’t get sucked into thinking that you have to accept whatever rates or terms that are dished out by your issuer. If your rate gets increased, get on the phone pronto and find out the reason. If possible, negotiate for a lower rate.

But even if you don’t have a great credit score, you’re still in charge. You might not have as much negotiating power as those with excellent credit do, but you can still demand excellent customer service and prompt responses to any questions you have. If you’re unsatisfied, then that credit card company doesn’t deserve your business. Time to move on to a better credit card.

And that leads us right to number two…

Everything’s negotiable (even before you apply for a card)

That’s right. You can ask for a lower APR, change your due date so it works better with your cash flow, and even request that a late payment be removed from the credit bureaus. You don’t always get what you ask for, but it doesn’t usually hurt to ask for what you want.

When could it hurt? If you have a low credit score and you ask for a credit limit increase, the issuer might worry that you're becoming a risk. This could result in a credit limit decrease. So be sure your credit score is in the good-to-excellent range before you try to get better terms.

Now, if you get several credit card offers in the mail, you can play them against each other.  Let’s say the offer for Credit Card A is a 12.99% APR on purchases and there’s a $95 annual fee. And let’s say that the offer for Credit Card B is a 15.99% and it also has  a $95 fee that’s waived for the first year.

With both letters in hand, call the issuer for Credit Card B and ask if you can get an APR that matches the offer from Credit Card A, which gets your APR down to 12.99%. And while you’re at it, ask to have the annual fee waived for the second year as well. You might not get all that you ask for, but you’re likely to walk away from that phone call with a better credit card deal than the ones you received in the mail.

The 45-day notice you get when your APR increases is misleading

The Credit CARD Act of 2009 gave consumers some much-needed protection. If a credit card issuer makes a major change in terms, such as raising your APR, they must give you a 45 days of notice that your rate is being increased.

Here's what that actually means: You have 45 days before you have to pay the extra interest accrued on the higher rate. But you actually start accruing interest at the new higher rate on any purchases you make 14 days after the notice was mailed. So on the 15th day after the post-marked date, you start accruing interest at the new higher interest rate on new purchases. You just don't have to pay it until 45 days has passed.

Is this legal? Yes, it is. But don’t count on getting this explained clearly. If you get notice of an APR increase, as soon as you get the notice in the mail, look at the postmark date so you know when the new rate takes affect. And take care not to make new purchases since you now have a higher APR.

Grace periods aren’t required by the Credit CARD Act of 2009

Just in case you aren’t familiar with the term, a grace period gives you a chance to pay your bill in full by the due date and avoid paying interest on your purchases. A grace period is usually between 21 and 25 days.

The CARD Act does not require a credit card company to have a grace period on their credit cards. But the CARD Act does require at least a 21-day grace period if the issuer decides to offer a grace period. The lack of a grace period usually isn't an issue with major credit cards, but you do need to look at the grace period and note how long it is.

If you have bad credit, though, be vigilant about reading the fine print and look for a grace period on credit cards you’re considering. If there isn’t one, you will start accruing interest on your purchases as soon as it’s posted to your account.

Credit card payment protection insurance is kind of worthless

You’ve probably gotten phone calls or mail about this type of insurance. I’m all for insurance when it comes to my health, car, house, and things like that. But the difference is that health insurance, for example, actually pays off when I need it. So I haven’t wasted money on premiums.

Credit card payment insurance supposedly allows you to stop making monthly payments on your balance for a period of time if something unfortunate happens, such as a job loss. But there are so many exclusions. It isn't as valuable as your credit card company says it is.

And it isn’t cheap. You’ll pay around $0.89 per $100 of your monthly statement balance. Example: Your monthly balance is $1,800. Your insurance payment is $16.02. Over a year, if the balance stays around the same amount, you pay $192.24. And then if you need to use the insurance, it might not come through for you.

Cash advances are an expensive way to borrow money

The APR and transaction fee for a cash advance is stated pretty clearly in the Schumer Box for each credit card. But you'll have to read the fine print to find out that there's no grace period for a cash advance.

And it gets worse. You’ll usually pay a higher APR for a cash advance plus a 3% to 5% transaction fee. The APRs can be 25% or more and the interest starts accruing right away. So that $2,000 you borrowed on your credit card will cost you interest at, say, 25% plus a $100 transaction fee (assuming a 5% fee).

You know who comes out ahead in this scenario? The credit card company wins hands down. Cash advances often lead to debt and then the issuer makes interest off your balance for a very long time. Just say no to a cash advance.

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