Sneaky Credit Card Tricks

[javaowl]

Answer to how a lender can consider you late on the DAY a payment is due:

 

http://www.bankrate.com/brm/news/cc/20021106a.asp

[four20nik]

I like this info....and am posting the individual info in case the linky goes bye bye....sticking each trick under it's own post...

 

Credit card companies can be as slippery as a handful of greased Jell-O. They have all kinds of tricks to gouge your wallet and drive up your bill. While arguably unfair, all these tricks are legal, leaving you no alternative but to stay as informed as possible to protect yourself.

 

Read your statement, report any irregularities immediately and watch for these 20 sneaky credit card company tricks. Start saving on fees now.

[four20nik]

The old bait and switch

So you've got this ingenious plan. You're going to apply for a great credit card that gives you tons of frequent-flier miles, put all your shopping on it, and then head to the Bahamas in February. Stop -- the miles you earn, if any, might get you no farther than Hope, Ark.

 

When and if you get that card, study the terms carefully. If you don't qualify for the great card, the credit card company can send you a completely different card with different terms. If it's not what you want, don't activate the card. Call the company and cancel the account.

[four20nik]

Musical address

Want to play hide-and-seek with your credit card company? No? Too bad. Tag, you're it. Here's your late fee.

 

Credit card companies sometimes change their payment P.O. Box. If you send your payment to the wrong one, it may meander around the postal system or your credit card's headquarters for a while before finding its way to the payments department. That means you're responsible for the late fee and your interest rate could be raised. It will be raised if you have one of those super-duper low rates -- guaranteed.

 

To avoid falling for this trick use the envelope provided in your statement. If you use a different envelope or use online banking, check the mailing address on your statement each month or call the company to verify the address. Always pay early to avoid last-minute mix-ups.

[four20nik]

Late fees in minutes

If you're five minutes late it could cost you $29. You see, even though your due date may be the 15th of the month, upon further inspection of your statement, you might see it's actually due by 1 p.m. So if Harvey the letter carrier took a few minutes of shut-eye at the cul-de-sac, it will cost you a late fee and a possible rate increase. Check your statement to see what time and date your payment is due and send it in early.

 

 

Being late is going to cost you, big time.

 

With credit card late fees climbing to $39, this is no time to be the least bit tardy with your card payment.

 

These payment tips and strategies from Bankrate.com will show you how to steer clear of those monster late fees.

 

Mind those payment rules. One of the most important things you can do is follow your card issuer's payment guidelines precisely. These guidelines are outlined on the back of each credit card bill.

 

 

When it comes to processing credit card payments, all these little details are incredibly important.

 

Payment guidelines may include everything from a specific payment address to the time of day by which the payment must be received to be credited that day. Many issuers also stipulate that payments must arrive in the preprinted envelope sent to the customer.

 

While the Fair Credit Billing Act requires issuers to credit payments the day they are received, each issuer is allowed to set specific payment guidelines. If any of the guidelines are not met, the issuer can take as many as five days to credit the payment.

 

An on-time payment could easily become "late" during that five-day period, so follow those payment guidelines carefully.

 

 

To ensure your payment gets credited immediately:

 

Use the preprinted envelope provided by the credit card company.

 

Include the billing coupon, and be sure to write the amount being paid in the box provided.

 

Make sure checks are legible and the payment amount is correct. Sign the check. Write the credit card account number on the check.

 

Send payment with proper postage to the payment address requested by the issuer. It's a good idea to mail your payment at least one week in advance of the due date. Ten days to two weeks prior to a due date is even better.

 

Pay minimum immediately

The safest strategy for anyone sending a card payment by snail mail is to pay the bill as soon as it arrives, even if you can only make the minimum payment. Giving your issuer the 2 percent minimum payment it wants ASAP is a great way to guard against late fees. And you can always send a bigger payment when you've got more cash.

 

Move your due date

Are your credit card bills due at a time of the month when you're running low on cash? Many card issuers will let you set your own due date -- if you ask. Why not time it so your credit card bill arrives right after a paycheck? That way you'll have plenty of cash to pay your bill each month.

 

Automatic online, on-time payments

Paying bills online can be a great buffer against late fees. Most major issuers, including Citibank, MBNA, Discover and American Express accept online payments. You can sign up for these services on issuer Web sites. Choose an online payment amount that automatically covers the minimum amount due on a credit card each month. Next, choose an automatic payment date well in advance of your credit card due date. This is a great way to pay credit card bills while traveling. To keep your interest costs down, you'll want to make additional card payments online or by snail mail as soon as you can.

 

Pay by phone

Paying by phone is a quick and easy way to make a last-minute card payment. Just grab your checkbook and call the toll-free number on the back of your credit card. You'll be asked for a check number and the bank routing number, which is printed at the bottom of every check. After you're done with the call, rip up the check because you won't be able to use it again. Many credit card companies accept payments by phone. Some issuers charge fees, ranging from $5 to $15 for this service. Be sure to ask.

 

More express options

If the due date is looming, consider sending a credit card payment by express mail or wiring the payment with Western Union. The U.S. Postal Service charges $13.65 for an express mail flat rate envelope, which guarantees next-day delivery by noon to most destinations. Wiring your payment will cost you as well. Western Union's fees for money-wiring service vary depending upon the amount of payment. These express services, while costly, are still cheaper than most credit card late fees. Make sure you send your express payment to the proper address. Many issuers have separate payment addresses for express payments. The last thing you want to do is slow the processing of an express payment by sending it to the wrong address.

 

No fee if you're "good"

Zapped with a late fee even though you mailed your payment well before the due date? Call and ask your issuer to waive the fee. Many issuers will waive late fees as a courtesy to customers with good payment records.

 

If all these fee-dodging strategies are too much for you, you may want to consider getting a card from a credit union or a local community bank. Smaller card issuers are much more lenient when it comes to penalty fees.

 

Late fees at community banks range from $10 to $15. Community banks also accept card payments 10 to 15 days after due dates without penalties.

 

Credit unions give card customers plenty of leeway as well. Generally, a credit union will accept a card payment 10 days after a due date without penalty. And if a credit union should charge you a late fee, it will only be $10.50 on average.

[four20nik]

Over-the-limit fees

This fee is a no-brainer -- don't go over. But what you don't know are the little tricks credit card companies use to push you over the limit.

 

One Bankrate reader wrote us to describe how his brand new credit card pushed him over the limit.

 

He applied for a card with a high-credit limit and requested a balance transfer to pay off another card. He received his new credit card and was hit with an over-the-limit-fee the first time he used it. Apparently, the credit card company gave him a card with a much lower limit and transferred as much of his balance as the card could hold. So when he got his card, unbeknownst to him, it was already maxed out.

 

 

Credit card companies have strapped on the brass knuckles. You'll need to be extra careful with your card to avoid bruising penalties. Bankrate.com can show you how.

 

Let's start by taking a closer look at the super-harsh penalty policies of credit card issuers. The numbers aren't pretty.

 

According to the 2001-2002 survey by Consumer Action, a San Francisco, Calif.-based consumer advocacy organization, late fees ranged from $10 to $35. The average late fee is $29. A handful of issuers, including Fleet Bank, have started charging $35 late fees.

 

Seventy-two percent of issuers surveyed—up from 68% last year—said they would hit cardholders with a late fee if their payment was not received by the due date.

 

Let's not forget about the big one-two punch. One slip up and some issuers will slap you with both a hefty fee and a penalty interest rate. Ouch.

 

Just how long a penalty interest rate lasts depends on your cardholder agreement. Some issuers punish rule breakers for a set period, say, two billing cycles. Other issuers are more vague. If you mess up you could be stuck paying a sky-high penalty rate for quite some time.

 

Needless to say, you can save yourself a whole lot of cash and a whole lot of stress by playing by the rules set out in your credit card agreement.

 

Unfortunately for customers, playing by the rules is a lot tougher than it used to be.

 

Gone are the days when issuers allowed 10 or 15 days for a payment to arrive after a due date before charging a fee. And thanks to dwindling grace periods, customers have less time to pay bills after they arrive in the mail.

 

How to avoid penalties

 

You've got to be quick with that card payment to avoid a penalty. If your payment arrives one day late, you'll be punished. These card payment tips can help.

 

Follow payment guidelines as outlined by the issuer on the back of each credit card bill.

 

Use the preprinted envelope provided by the credit card company.

Include the billing coupon, and be sure to write the amount being paid in the box provided.

 

Make sure checks are legible and the payment amount is correct.

 

Sign the check. Write the credit card account number on the check.

 

Send payment with proper postage at least one week in advance of the due date to the payment address requested by the issuer.

 

Consider online bill paying. Most issuers now accept online payments.

 

If the due date is looming, consider sending the payment by express mail or wiring the payment with Western Union. These express services may prove cheaper than paying a late fee.

 

Another good strategy is to adjust your payment due date. Many card issuers will let you set your own due date if you just ask. Why not time it so your credit card bill arrives right after a paycheck? That way you'll have plenty of cash to pay your bill each and every month.

 

With so many issuers charging so many different kinds of fees, it's more important than ever for consumers to study card offers carefully.

 

If you're sick and tired of credit card fees, you may want to consider getting a card from a credit union or local community bank. Smaller credit card issuers have not jumped on the fee bandwagon.

 

Late fees and over-the-limit fees at community banks usually range from $10 to $15. Unlike some larger issuers, you won't be charged an over limit fee if you exceed your credit limit by $1.

 

A card customer would have to exceed a credit limit by 10 percent before a community bank would charge a fee. Community banks also accept card payments 10 to 15 days after due dates without penalties.

 

Credit unions give card customers plenty of leeway as well.

 

The typical credit union will accept a card payment 15 days after a due date without penalty. Late fees and over-the-limit fees at credit unions are roughly $10.50 on average, according to Credit Union National Association.

[four20nik]

Cash advance fees and rates

Don't take cash out of your credit card. Read the fine print on your statement and you'll see it's a very bad idea. Your card might have a really low rate for purchases, but if you take out a cash advance, get ready for a shock. The rate for cash advances is much higher. And there is no grace period -- you start paying interest right away.

 

Aside from paying a high rate on the cash you take out, you're going to pay a fee, usually 2 percent to 4 percent of the amount advanced. And your payments will be applied to the lower-interest balance before they are applied to your cash advance.

 

 

Q. How do cash advances from a credit card work?

 

Many consumers are unaware that every time they use their credit cards to withdraw cash, extra fees kick in:

 

Cash advances carry an upfront fee of 2 percent to 4 percent of the amount advanced.

 

They have a higher interest rate than regular card charges.

 

They carry no grace period; interest charges begin to mount as soon as the money spits out of the ATM.

 

Many issuers also require you to pay down the balances for purchases before you pay down the higher-interest cash advance balance.

 

"Using cash advances is like borrowing money when you can't afford it," says Steve Rhode, president and co-founder of Myvesta.org, a nonprofit group providing help for difficult financial problems. "You're setting yourself up for failure. It's convenient, and people don't care about the fees associated with it."

 

The fees and charges applied to cash advances are not hidden fees. By law, card issuers are required to disclose information about fees and charges associated with all of their services. This information is typically displayed on the back of the solicitation form and on the monthly statements.

 

Card issuers say they have two reasons to charge the additional fees. Cash transactions cost more to process than regular credit card purchases, and there's a higher frequency of default among frequent cash-advance users. The higher costs and increased delinquency risk are passed along to the consumer.

[four20nik]

Reverse the late payment, but up the rate

Credit card companies may forgive a late payment, but they could still punish you by raising your rate. Let's say you fell for the ever-changing-mailing-address trick. You call and scream until they reverse the late-payment fee. But next month, when your bill arrives, you notice you're now being charged a much higher interest rate because you were late on a payment. A Bankrate reader told us this happened to him.

 

 

By concealing important agreements in tiny print, raising rates on a whim and charging big fees you'd think credit card companies were making enough money. Apparently, they disagree.

 

Check out what Bankrate reporter, Lucy Lazarony uncovered this year.

 

Just how crummy are some of today's credit card offers? Check out this Visa card offer from Plains Commerce Bank. You pay $79 just to apply for the card. Once approved, you'll have to shell out an acceptance fee of $225, an annual fee of $50 and a monthly participation fee of $6, for a total of $281. The card's initial credit limit is $300. So when you receive your card the available credit will be just $19. When you add up all the fees, you've paid $360 for a credit line of less than $20. It's hard to imagine a more expensive credit card.

 

 

 

But at least the terms of the Plains Commerce Bank Visa are easy to understand. Its ghastly fees are spelled out in black-and-white. Getting a handle on the AmeriOne MasterCard from First National Bank of Central Texas is a lot tougher. This card comes with a membership fee of $39.95, a set up fee of $50 and a monthly maintenance fee of $9.95. So the initial cost of the card is $99.90. Here's the strange part.

 

Your credit limit is determined by how much additional money you send in. So first you make a payment and then you're free to spend with the card. Send in $30 and you're free to spend $30. It's a pay-before-you-spend card. The minimum monthly deposit you can make to the card is $15. Toss in the monthly maintenance fee of $9.95, you end up paying $24.95 for the privilege of making a $15 purchase with the card.

 

It turns out the AmeriOne MasterCard isn't a credit card at all. It's a super-spooky and super-expensive debit card.

 

Even supposedly premium card deals may have consumer-unfriendly terms, such as eye-popping $35 late fees. Citibank, MBNA America, and Discover will charge a $35 fee to any credit card customer with a balance of $1,000 or more who misses a payment deadline. Fleet Bank charges $35 for any late fee, regardless of balance. Yikes.

 

The horrors don't end there. Bankrate readers flooded our office with tales of intentional sabotage.

 

The great shuffle

My credit card company offered me a good fixed rate several years ago so I transferred two balances from higher-interest cards. About eight months later, a company representative called me to offer me an increase in my line of credit, based upon my payment history and asked if I like to transfer some more balances? Sure! Good news, I thought, and happily transferred some other high-rate debt. Then, about six months after that, they informed me that they were raising my rate to 20.9 percent.

 

I'd never missed a payment or paid late and always sent more than the minimum payment each month. Their decision was based upon my FICO score, which was the same as it was when they offered me the credit-line increase.

 

When I protested and asked to go back to the original deal, I was transferred from person to person with each one suggesting I send a letter to plead my case. And, it was next to impossible to extract the correct address for which to send my appeal. Every person I spoke with was quick to repeat the company line to appeal in writing. If this isn't predatory lending, it doesn't exist.

 

Beware of balance transfers

A credit card company sent me a mailing offering a new card at an attractive rate. They said I could be eligible for up to $28,000 in credit and offered a good rate for balance transfers. I applied for the card, and since it was part of the application, I applied to transfer about $18,000 in balances. Apparently, the company decided they couldn't give me the full $28,000 worth of credit but only gave me $14,000. They then transferred $14,000 worth of balances, instead of the $18,000 I'd requested. Since that transfer put me at my credit limit, the first time I used the card for a charge, they hit me with a charge for exceeding my credit limit. All of this in the first month I had the card!

 

New addresses reap profits for credit card companies

For the past several years, my credit card payment was automatically sent out the first of each month through my online bill paying service at my bank. I enjoyed the lowest rate, 4.75 percent, all that time.

 

This past August the payment did not clear my bank until the 20th of the month even though it went out at the regularly scheduled day of Aug. 1. I discovered this when I was charged a late fee on my credit card bill. It turns out that there was a new address for payments and since I use the online bill pay, I didn't notice it. So, it went to the old address. And, it was not processed timely.

 

I changed the address in my banking system and the credit card company even agreed to waive the $29 late fee since it was a processing error. However, the next month, they increased my interest rate to 19.99 percent because I had made a late payment!

 

After arguing with the company, the best they could do for me was to reduce it to 9.99 percent -- still unacceptable. Imagine how many customers they do this to by changing their mailing address periodically. I am going to close my account and pay the balance with my line of credit. This is the thanks they show me after eight years of business.

[four20nik]

Increasing the rate based on other accounts

Your credit card company may use your late auto loan payment to justify a rate increase. They frequently check your credit report and look for any late payments to justify raising your rate.

 

 

 

Mind those bills. All of them. Credit card companies are watching.

 

 

 

Some of the biggest credit card companies have started aggressively penalizing customers who show signs of trouble anywhere in their credit reports. If a company likes what it sees in a customer's credit report, a cardholder might get rewarded with a thicker credit line. But one black mark from any creditor could trigger a rate hike.

 

 

So if you fall behind on your Sears bill, the interest rate on your Citibank credit card could shoot up.

 

"Why should that matter?" asks Howard Strong, author of What Every Credit Card User Needs to Know. "It doesn't harm them in any way. It's ridiculous. It's just a way to knock up rates."

 

"We're looking at risk factors. If we see someone become delinquent with another creditor, that may be an indicator that they are about to become delinquent with us," says Maria Mendler, a spokeswoman for Citibank. "We may need to adjust our credit decisions accordingly."

 

Who's watching

In the spring of 1999, AT&T Universal Card informed card holders that the card's interest rate may jump to 23.9 percent if a "payment is not received by us or any other creditor within 30 days of the due date."

 

Citibank, which bought the AT&T Universal Card in 1998, started a similar policy in late 1998.

 

Around the same time, Capital One notified its customers that they reserve the right to change the terms of the account if it's not in good standing "or if you do not maintain good standing with other credit accounts and excellent performance with credit bureaus."

 

"We don't want our good customers subsidizing our bad customers or those that are more challenged," says Diana Don, a spokeswoman for Capital One. "It's not just one bad move. It's really looking at a customer's portfolio as a whole and deciding what product is right for them at the time. Each one is priced to their own risk and what's going on at the time."

 

 

 

Some card companies review customers' credit reports more often than other companies.

 

"Some may do it monthly. Some may do it quarterly. Some may do it yearly," says Martie Edmunds Zakas, corporate vice president of communications for Equifax, one of the three major credit bureaus. "Some never do it."

 

All Capital One card customers are subject to periodic credit checks.

 

"Of course, we may look at rule-breakers more frequently," Don says. "If people are constantly late or going over the limit, we don't want to give them that much leverage to overextend themselves."

 

Although these pricing policies are spelled out in cardholder agreements and billing inserts, most people don't know about them. AT&T Universal Card holders, for example, had to wade through six pages of tiny print before they came across the phrase requiring them to maintain credit purity.

 

 

Customers blindsided

Credit counselors say many people feel blindsided by the card companies' rate hikes -- especially if they haven't been late with any payments.

 

"I'm hearing about it more and more," says Hal Prather, a branch manager at Consumer Credit Counseling Service in Norcross, Ga. "It's apparent to me that most people don't read the inserts. I think most people learn about it the hard way."

 

Mike Kidwell, vice president of the non-profit debt crisis center Myvesta, adds, "We get calls and e-mails all the time. 'I've never been late on this card. Why is my rate going up?' Or 'I had trouble with one account and my rates went up on another card?'

 

"You've got to be aware of limits on credit cards. If other creditors are seeing balances going up and all of a sudden you're late, you're considered a greater risk. Not just with the one creditor that you paid late but with all your creditors."

 

How to protect yourself

To help protect yourself against a credit card rate hike:

 

Keep a list of credit card accounts, due dates, balances and credit limits.

If a credit card due date falls at a time of the month when cash is tight, call the issuer and have the due date changed.

 

Get in the habit of paying credit bills as soon as they arrive.

 

Monitor card accounts carefully.

 

Check your credit report at least once a year and correct any errors (Okay....I must say YEAH, RIGHT!).

 

Getting a credit report will also allow you to see how often creditors are checking up on you. Fortunately, increased snooping from a current creditor won't hurt your creditworthiness. Checks by your existing creditors are considered "internal inquiries."

 

An "external inquiry" is triggered when a consumer applies for a new credit card or loan, or gives permission to a potential employer to make a credit check. Frequent external inquiries may be viewed as a sign of iffy credit.

 

"Nobody but you sees internal inquiries on your credit report," says Anissa Yates, manager for corporate communications for Experian, another of the major credit bureaus. "Businesses are not given access to internal inquiry information on a credit report. It's physically impossible in our system for them to get our information."

[four20nik]

Fixed rates aren't fixed

A fixed rate means the credit card company has to give you 15 days notice before raising your rate. You can call and ask them to lower it, but they don't have to do it.

 

 

A five-minute phone call to your credit card issuer could save you hundreds, even thousands, of dollars in interest charges.

 

"There's no incentive for them to lower your rate unless you call. The squeaky wheel gets the oil," says Brad Dakake, a consumer advocate with Massachusetts Public Interest Research Group.

 

Not convinced that a credit card company will give you a lower interest rate just because you call and ask nicely?

 

Check out the results of a national survey conducted by the U.S. Public Interest Research Group in March 2002. Fifty consumers of all credit backgrounds called credit card issuers and asked for lower rates. More than half, 56 percent, scored lower rates. How low did the rates go?

 

The 28 consumers who landed lower rates saw the APRs on their cards drop from an average of 16 percent to 10.47 percent.

 

 

Slicing interest rates by more than one-third by making a quick phone call is pretty impressive. A handful of consumers did exceptionally well.

 

One cardholder from Colorado saw his 14.99 percent rate reduced to zero for six months. That's quite a deal.

 

Another cardholder from New Mexico saw the APR on her credit card drop from 31.12 percent to 14.65 percent. Until she called, she had no idea she'd been paying a penalty interest rate.

 

"She didn't realize that for six months she was paying this outrageous 31 percent interest rate," says Dakake, the principal author of the rate reduction survey and study.

 

It can't hurt to ask

Why are card issuers so willing to cut interest rates for so many of their customers? For one thing, competition in the credit card industry is fierce. If you're a good customer, a card company is going to want to hang on to you.

 

"It costs them a couple hundred bucks to acquire a new customer and it's not so easy anymore," says Howard Strong, author of What Every Credit Card User Needs to Know.

 

And thanks to Alan Greenspan, issuers can afford to make rate cuts for their customers. The Federal Reserve continues to cut interest rates, making it much cheaper for issuers to borrow the money they lend to customers.

 

"They can afford to give consumers a break," Dakake says. "And they'll do it to keep your business."

 

And while it's not quite a matter of ask and ye shall receive a lower credit card rate, it's pretty darn close. All the consumers who participated in the PIRG survey were given the following sample script.

 

Hi, my name is [Your Name]. I am a good customer, but I have received several offers in the mail from other credit card companies with lower APRs. I want a lower rate on my card, or I will cancel my card and switch companies.

 

And that's it. Even folks who dread confrontations ought to be able to handle that. You only need to be assertive for a matter of seconds.

 

"Additionally, a lot of people would ask for a 10-point reduction," Dakake says. "A lot of people aren't going to get that, but I think it's important to shoot high."

 

Persistence really pays

Strong, who teaches a class for people with credit problems, encourages all of his students to call their credit card issuers and ask for lower rates. Many do just that. How many are successful?

 

"I would say three out of four easy," Strong says.

 

He encourages folks who are denied rate reductions to try again another day. You may reach a more cooperative customer service rep. You may be sent to an agent who specializes in keeping customers who are threatening to leave.

 

Be persistent and make it clear that you'll close your account if your interest rate is not lowered.

 

"Persistence pays in these matters," Strong says. "If the rep won't do it for you, ask for a supervisor."

 

Keep your request simple.

 

"I personally like the line, 'What can you do to help me out?' " Strong says. "Another classic negotiating line is 'Can you do any better?' "

 

If your card company won't budge, it's time to start looking for a better deal. This search engine from Bankrate.com can help you search for card deals from issuers from around the country. This worksheet shows you how to transfer a balance to a lower rate card without a hitch.

 

"You have to be prepared to move your account if they don't do anything for you," Strong says. "Some of these places are really hard line."

 

Not everyone who asks is going to get a lower interest rate. But long-time customers may have a better chance than newer customers.

 

The consumers in the PIRG survey who saw their rates reduced had been with their card companies an average of four years. They were also using only 27 percent of their credit lines.

 

Newer customers with higher balances may have a tougher time getting their interest rates knocked down. But it's still worth a shot.

 

"It's well worth a five-minute phone call," Dakake says. "Why would you want to pay even $10 more to your credit card company if you don't have to?"

[four20nik]

Raising your rate for no reason

They don't need a reason. They can just do it -- it's in the agreement. If they won't give you a lower rate, get a new card and cancel the old one.

[four20nik]

"Free gifts" that cost a bundle

Did you really think they'd give you something for nothing? Throw away those offers that come in your credit card statement.

 

 

While free "gifts" from credit card companies and department stores might seem like great offers, they are diasters waiting to happen. Offers of raised credit limits or payment delays are short-term fixes that result in long-term debt and damaged credit.

 

Aside from the debt you can accumulate, access to large amounts of credit can hurt your chances of getting a mortgage or some other necessary financing. A loan officer may think that after you buy the house you will be tempted to use all that credit to furnish it, and default on your home loan.

 

 

Limit department store cards

Department store cards don't have to be shunned altogether, says Linda Sherry, spokeswoman for Consumer Action, a national nonprofit organization. "If you're loyal to a department store, there's no reason to avoid having one or two store cards if you pay them in full every month. Having the card may entitle you to special discounts or pre-public markdown sales, which some people find useful."

 

"What's important to remember is that store cards tend to have higher interest rates than bank cards. Since interest rates on store cards aren't tied to credit scores, like bank cards, every one pays the same interest rate on store cards irregardless of their credit history," says Sherry.

 

Department store credit cards typically charge 21 percent to 29 percent interest. There are no teaser rates, no zero percent APRs for a while.

 

You must pay these cards on time, or risk paying an even higher interest rate, and avoid carrying a revolving balance. You should also avoid offers to increase your credit line.

 

Skip those skip payment offers

Another little present is the opportunity to skip a payment or defer payments on a new purchase for 30 to 90 days. Department stores often do this around the holidays for big-ticket items.

 

"Some people might find this helpful," says Sherry, "but remember that the interest accrues as usual and if you don't pay it for a month, it increases your balance."

 

By the time you start making payments, the minimum is so much higher, many people find they can't make it.

 

 

Experts advise saying "thanks, but no thanks" to skip-payment offers, especially if you are close to maxing out your credit limit. The monthly interest accrued can put you over your limit, and then you get charged an over-the-limit fee. Don't take payment holidays. They're not in consumers' best interests at all.

 

Minuscule monthly payments look like a relief but again, the creditor is the only one benefiting in the long run.

 

Sherry recommends that card holders pay the minimum balance, plus as much extra as they can afford, every month. Otherwise they'll be in debt for years, even for a balance of several hundred dollars.

 

When minimum payment isn't enough

Even if you go over your credit limit, card companies will sometimes require a minimum payment that is not enough to bring you under the limit.

 

"This practice can be very unfair, especially since the bigger the balance the more interest is due," says Gary Klein, author of Surviving Debt: A Guide for Consumers. "It makes it hard for people who are having financial problems to get back on their feet."

 

Another enticement that might be crowding your mailbox is an invitation to transfer balances to a new card. These are tricky. Balance transfer offers typically come with a super-low introductory rate for anywhere from six months to one year..

 

A zero percent to 6 percent APR holds a strong appeal, but a close look at the fine print reveals pitfalls. New purchases are subject to a much higher rate. The low-rate balance must be paid off first, while the purchases you made at 14 percent or higher accrue more interest.

 

"It's called the payment hierarchy and it's very sneaky," says Linda Sherry, spokeswoman for Consumer Action.

 

If the transferred amount is not paid off before the teaser rate expires, you could end up paying more than you would have had you kept the balance on the old card. Consumers should try to get a low rate that is fixed until the balance is paid.

 

Beware balance transfers

Balance transfers can have another hidden hit. Some of them are treated like cash advances, for which banks usually charge a fee of 2.5 percent to 5 percent of the amount transferred.

 

"I had a complaint from a First USA cardholder who was told he was such a good customer that he could transfer a $9,900 balance," says Sherry. "He did, and it cost him something like $300."

 

Cash advances also are charged a higher interest rate and carry no grace period.

 

The best thing consumers can do is set a budget. Set spending limits, put aside cash and make sure there is enough money to cover emergencies.

 

The convenience of credit cards is what makes them so alluring. It's so easy to say you'll worry about it later.

 

But (later) people start realizing, 'Oh no, I'm never going to get out of this.'

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Selling credit card theft insurance

You don't need theft insurance for your credit card. If it's stolen, you are only liable for $50, at most.

 

 

 

Q. What happens if my credit card is stolen?

 

Odds are if someone steals your credit cards and goes on a buying spree it won't cost you anything. Federal law limits your liability to $50.

 

Most card companies will tell you that while it can cost you that $50, that fee is rarely applied.

 

Many card companies now offer some form of fraud protection, but be sure it is a genuine guarantee before you accept it. There are a lot of phony companies making phony offers of "insurance" against someone else using your card, when in fact you are already protected.

 

You are supposed to report stolen or missing cards as soon as possible, or at least within 24 hours, for that zero-liability luxury. Once again most, card companies admit that they rarely enforce this requirement. However, it is the wisest practice to do just that and get on the phone as soon as you see the card is gone or the minute you see a bill with charges you never ran up.

 

Follow that call with a letter confirming the facts of the loss or the phantom charges on your statement, and also include the details of your call (who you spoke to, when, etc.). It's a simple "better-safe-than-sorry" policy.

 

 

Read all of the fine print when you get your card deal because there are always exceptions. Card companies are more liable to ask for their money if you have done something reckless, like not reporting the card stolen for a year or more.

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Credit card disability insurance will make debt worse, if it ever kicks in. One Bankrate reader wrote in to say she developed cancer and her credit card company kept finding reasons not to activate her disability insurance even though she paid for it every month.

 

But credit card disability insurance is a really bad idea anyway. Even though you don't have to make payments, the debt piles up all along. And you can't use the card during that time either.

 

 

People with shaky credit can fall prey to shady credit card deals.

 

Some are downright dishonest, some are offering products that really don't stand up when you put a spotlight on them.

 

And if you do sign up be sure the company offering them is the right one (i.e., do they come directly from the card issuer?). If not, contacting the card company to be sure the cards are authorized.

 

Beware of "debt suspension" offers. Banks can offer it without having to use insurance companies. It is commonly offered as an extra with your card, and is generally sold as a way to keep your head above water if you can't make monthly payments because of a job loss or disability. But this sort of insurance does nothing to pay your bills while you can't -- it simply puts them on hold. While you are out of work you can't use your card, and while interest is not being applied, the total balance is lurking in wait for the minute you get back to work.

 

Beware of buying credit protection you don't need. For example, many people have been duped into buying protection in case their card is stolen and the thief runs up a big bill. But federal law already protects card users. Consumer liability is capped at $50, and it is rare to have a credit card company even ask for that money if you have promptly reported the card missing or stolen.

 

 

Beware of paying fees in advance. Some scammers will promise credit cards with some pretty good-sounding terms. There's just one catch -- the only way you get that card is via a fee paid in advance -- which they ask for to help with the paperwork or "to get you pre-approved" or some such line. Once you've paid the fee, you won't hear from them or be able to find them again. The main target of advance fee scammers are people who are desperate for a card with great rates and terms -- people who can least afford to lose money.

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Setting low minimum payments

It'll take forever to pay off your balance if you only pay the minimum. Most credit card companies set the minimum payment at 2 percent of the debt. At that rate, you could be paying for life.

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Cards that cost more in fees than they give in credit

If you've got shaky credit, you could fall prey to a really bad credit card deal, like the card with $360 in fees that leaves you with a $19 credit limit.

 

 

Can you imagine paying $281 in fees plus a $79 application charge for a Visa card with a $19 credit limit?

 

Or how about paying almost $100 in set-up fees for the privilege of using a MasterCard that makes you pay off the bill before using the card. Plan to spend $40 next month? Pay the company $40 in advance and then you'll be able to make a $40 purchase.

 

These are just a couple of the truly rotten card deals targeted to people with damaged credit.

 

"This type of card is for a person that is very high risk," says Deborah McNaughton, author of The Insider's Guide to Managing Your Credit.

 

"They're unfortunately going to be penalized."

 

Just how lousy are these deals? Let's take a closer look, starting with a Visa card from Plains Commerce Bank. At first glance, it doesn't seem too bad.

 

It has an annual percentage rate of 19.92 percent, which is on the high side but hardly unreasonable. In an age of dwindling grace periods, its grace period is a rather robust 25 days. It charges a late fee and over-the-limit fee of $25, which is lower than many of the penalty fees charged on platinum and titanium cards.

 

Here's the costly catch

The rest of the fees on the Plains Commerce Bank Visa will make your jaw drop.

 

You pay $79 to apply for the card. And that's just the beginning, before you get the card. Once you're approved, you'll have to shell out an acceptance fee of $225, an annual fee of $50 and a monthly participation fee of $6, for a total of $281. The card's initial credit limit is $300. So when you receive your card the available credit will be just $19.

 

Continued below

 

 

When you add up all the fees, you've paid $360 for a credit line of less than $20. It's hard to imagine a more expensive credit card.

 

But Cindy Jager, vice president of credit card operations at Plains Commerce Bank, says the card's fees are "in line" with the customers the card serves.

 

"These people have poor credit and accordingly we are not able to allow them the ability to run up credit balances without first proving their willingness to pay for their purchases," Jager says. "I liken it to paying higher car insurance based upon your driving record."

 

Most unsecured credit cards targeted toward consumers with no credit or damaged credit come with some hefty fees. And it's not unusual for a customer's initial credit line to be less than $100 thanks to all the fees. But a credit line under $20 could be a new low.

 

"I don't think I've ever seen one as low as $19 ... that's unfortunate," says Jeanne M. Hogarth, program manager in consumer policies at the Federal Reserve Board.

 

"You end up with a very frustrating experience of being over the limit on the very first thing you charge."

 

The Plains Commerce Bank Visa is a pretty straightforward credit card offer. Its fees are spelled out in black-and-white. Getting a handle on the AmeriOne MasterCard from First National Bank of Central Texas is a lot tougher.

 

Bad deals get worse

Let's take a look. First off, there are no credit checks and no employment verification with the AmeriOne MasterCard, which is targeted to people with past credit problems.

 

The card comes with a membership fee of $39.95, a set up fee of $50 and a monthly maintenance fee of $9.95. The initial cost of the card is $99.90. Here's the strange part.

 

Your credit limit is determined by how much additional money you send in. So first you make a payment and then you're free to spend with the card. Send in $30 and you're free to spend $30. It's a pay-before-you-spend card.

 

The minimum monthly deposit you can make to the card is $15. Toss in the monthly maintenance fee of $9.95, you end up paying $24.95 for the privilege of making a $15 purchase with the card.

 

The AmeriOne MasterCard is actually a very expensive debit card, rather than a credit card. It's being marketed to people with damaged credit who can't qualify for an unsecured credit card.

 

"A lot of people can't get a credit card issued to them," says Paul McClinton, chief executive officer of Electronic Financial Group, which is marketing and processing the cards.

 

Fortunately for consumers, there are plenty of other and better credit options for people with damaged credit.

 

"Consumers could do better if they simply shopped around and looked for a card that would give them a true line of credit rather than this prepaid situation," Hogarth says.

 

Checking out secured credit card offers is one way to start. A secured card is a good first step in establishing or re-establishing credit. With secured cards, a cardholder makes a savings deposit in exchange for a credit line.

 

The interest rates and fees on secured cards tend to be lower than those charged on unsecured credit cards targeted toward people with problem credit. Still, fees on some secured cards can be substantial. Study offers carefully. You'll want to avoid secured cards with processing or application fees.

 

Interest rates in the high teens or higher are typical for secured cards and so are annual fees. Because annual fees may vary dramatically from offer to offer, it's best to shop around. This table from Bankrate.com lists secured card offers from banks around the country.

 

For more tips on landing a good secured credit card offer, check out this article from Bankrate.com.

 

Remember, you're using a secured card to build up a strong payment history, not go into debt. So stick to smaller purchases that you can pay off each month.

 

"All you're trying to do is get a good payment pattern back on your credit report," McNaughton says.

 

After a year of on-time payments with a secured card, you may qualify for an unsecured credit card with a lower interest rate. Shop carefully.

 

"Make sure you're looking at the disclosures and comparing. Don't just grab the first application you get," McNaughton says.

 

You've worked way too hard to get your credit back on track. Don't sell yourself short by signing on for the first costly offer that comes your way. Be a smart shopper.

 

Don't overlook offers from local banks and credit unions; the deal you're looking for may be from a lender just around the corner.

 

Don't fall for a no grace period

Be sure to check out a credit card's grace period before applying for an offer. Most credit cards offer 20- to 25-day grace periods to customers that pay off their balances each month.

 

A grace period is the period after a purchase is made during which interest is not charged. If payment is made in full by the end of the grace period, no interest is charged. But if only a partial payment is made, interest kicks in at the end of the grace period.

 

If a credit card doesn't have a grace period, you'll pay interest on every single purchase you make with the card even if you pay off the bill each month. The interest clock will start ticking as soon you make a purchase. Any credit card without a grace period is a lousy deal. Don't fall for it.

 

"The grace period is very, very important," McNaughton says. "If there's no grace period, don't do it."

 

If your credit is really in the dumps, you may want to avoid applying for credit cards for quite awhile.

 

"The primary thing for someone who is credit challenged is to stabilize the financial situation," says Tiff Worley, president of Auriton Solution, a credit counseling agency in Roseville, Minn.

 

You'll want to get your finances in order as quickly as possible. Are you behind on bills? You'll want to get current on every single bill as soon as you can.

 

If you need help, you may want to consult a credit counselor. They can give you advice on dealing with creditors and help you develop a plan for paying off debt.

 

Digging your way out of a financial hole won't be easy or quick but it's the only way to turn your financial life around. For money saving tips, check out the Frugal U. channel on Bankrate.com.

 

Once you're current on all your bills, have a budget you can live with and a little money tucked into savings, you can focus on building up your credit history

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Balance-transfer fees and disappearing low rates

If you're not careful, you'll get socked with unexpected fees and soaring rates when you transfer your balance. Before transferring a balance, ask if there is a fee. Also, ask how long the low rate lasts. Those low rates on credit card offers are usually only good for six months. If you are late on one payment, the low rate is immediately replaced with a much higher rate. Another note of caution: When you transfer a balance from one card to another, wait to see the balance appear on the new card before closing the old one.

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Zero-percent offers -- with a big catch

Those zero-percent offers sound like a good idea until you miss a payment or the introductory period ends. After that, you can end up with a sky-high rate.

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Charges for charging abroad

In addition to the 1 percent currency exchange fee on Visa and Mastercard, some major banks are charging a 2 percent fee on credit card and debit card purchases made outside the United States. After a vacation's worth of spending, those fees will add up.

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Shrinking grace periods

The grace period is the time between when you make a charge on your credit card and when that amount starts building interest. Many credit card companies are shrinking that time down to 20 days, meaning that by the time you get your bill, you may already be paying interest.

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Pre-paid gift credit cards worth less than you pay

The fees on these cards can make them worth less than they cost. And they can expire rapidly -- making them worthless. You'd be better off giving cash.

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Is anyone there?

If you want to talk to customer service, you better have a lot of time to kill. Credit card companies don't want to save you money at their expense. So they will transfer you and put you on hold until you are blue in the face. The name of the game is Frustrate the Customer Until They Give Up and Go Away.

 

This trick isn't limited to the credit card industry, either. When I wanted to lower my bill, a certain cell phone company spent an hour and a half putting me on hold, transferring and "accidentally" hanging up on me. Persistence pays off -- but it's exhausting.