Free Geekery

How can you live without a credit card, especially if you’re
a hermit and you order everything from avocados to xylophones through online
venues? Credit cards can be a boon or a bane, depending upon how you handle
your personal finances. Here are 12 little known facts about credit cards
that no cardholder should be without.

Fact 1: The Universal Default clause could hurt you.

Your credit card companies can
href=”http://moneycentral.msn.com/content/Banking/Yourcreditrating/P56621.asp”>raise
your interest rates based upon your late payments elsewhere. A late payment
anywhere, according to credit card companies, means that you either don’t know
how to handle your finances or that you have taken on too much debt. This
practice is called the “universal
default” clause, a caveat that means the bank can raise your interest rates
when it has reason to believe that you’re a high risk for defaulting on any
debt.

You’re more subject to this “universal clause” today than
you were a few years ago, because credit card banks can track your everyday
financial activities and monitor your credit score (FICO). In fact, many credit
card banks will offer your FICO score on their sites, a feature that you can
access when you go online to check your balance or to pay your bill.

But, in January, Democratic presidential hopeful Christopher
Dodd of Connecticut
put credit cards on notice about this practice because it hurts lower-income
families more than it does the rich. According to
href=”http://www.usatoday.com/money/perfi/credit/2007-01-25-credit-cards-congress_x.htm”>this
USA Today article, Capital One Financial stated that
it did not use the universal default practice. But, Capitol One General Counsel
John Finneran did state that, “There is only one
circumstance in which a customer might be subject to default pricing — if they
pay us more than three days late twice in a 12-month period.”

Fact 2: A low FICO score will affect your interest rates.

If your FICO score
is less than 600, you may not be able to increase your credit line, and you
might be allocated to a category known as “People with Bad Credit.” This score,
or level, determines how much you can borrow and it also can predetermine your
interest rate.
href=”/types/poor-credit.html”>You can
still acquire a credit card when your score doesn’t equal the value of your
good intentions, but you’ll be relegated to acquiring cards that carry a hefty
yearly fee and a high annual percentage rate.

Even if a credit card’s annual fee seems paltry to you, be
aware that the bank might decide to increase that fee by double or triple the
original amount in upcoming years. You might consider the fee-based credit card
as a temporary measure to hold you over until your FICO score increases. As
your score rises, you will be eligible to ask for a low- to
href=”/types/zero-apr.html”>zero-percent
interest rate card to carry over balances from high-rate cards.

Fact 3: You can negotiate your way out of high interest
rates.

But, you need to be prepared. First, figure out your current
interest rate, and then find out what the competition is offering. When you
call your credit card company, talk to someone who can make a difference. The
first individual who answers the phone generally doesn’t have the power to approve
changes, so don’t waste your time. Ask for the supervisor and tell that person
about what the competition has offered you. Be sure to take down names and the call
times for future reference.

You might encounter several levels of supervision within a
company’s credit card department. If the first
supervisor doesn’t give you what you want, ask to speak to that supervisor’s
manager. And, if that person doesn’t give you what you want, ask for the person
at the next highest level. You can find more advice about this strategy at
href=”http://www.bankrate.com/brm/green/cc/basics4-3a.asp”>Bankrate.com.

You have support in this effort, whether you realize it or
not. Comptroller of the Currency John C.
href=”http://www.occ.treas.gov/toolkit/newsrelease.aspx?Doc=I51QIBS3.xml”>Dugan
recently stated that, “In addition, lenders always have the option of
reducing high interest rates charged to delinquent borrowers – sometimes
exceeding 30 percent of the outstanding loan balance – and/or waiving fees in
order to reduce a minimum payment while still amortizing a modest amount of the
outstanding principal.” So if you’re not getting anywhere with your bank on
this issue, just quote this OCC
(Office of the Comptroller of the Currency) officer to let your credit card
company know that you’re on top of this issue.

Fact 4: Currently, the sky’s the limit for late charge
payments.

So be careful about late payments. Even one hour can make a
class=SpellE>differnce. And, these penalties may continue to rise
unchecked over upcoming years along with over-the-limit fees and charges for
returned checks. Many credit card companies now use a
href=”http://money.cnn.com/magazines/moneymag/moneymag_archive/2005/03/01/8251208/index.htm”>tiered
penalty system that is based on your monthly balance; so the more you owe,
the bigger the penalty if your payment is late. Additionally, you’ll owe more
if you continue to be late.

Recently, however, the OCC
href=”http://www.occ.treas.gov/toolkit/newsrelease.aspx?Doc=T5J2Y30N.xml”>issued
supervisory guidance that alerted national banks of concerns about credit
card account management and loss allowance practices, secured cards, and credit
card marketing practices. They warned that formal enforcement actions will take
place against several banks to end unfair and abusive practices and make
restitution to consumers totaling hundreds of millions of dollars. How this
might affect your exorbitant charges is unknown, but this act will eliminate
bank practices that offer unfair issue through misleading or
difficult-to-understand advertising and marketing.

Fact 5: Credit card companies can shrink your payment
time frames.

If you noticed lately that your
minimum payment has shrunk, take note of your payment time frame. A credit card
company can manipulate your payment time frames, a practice that will move your
payment dates around. When the time frame has shrunk from, say thirty days to
twenty-five days, the credit card company can lull you into thinking that you’re
paying on time when, in reality, you might miss a payment date if you don’t
notice this practice.

It’s possible to resolve this issue if you call your bank
and tell them that you need a solid date for payment, the same date each month.
But, it’s best if you do this as soon as you notice that the payment dates have
changed on your billing.

Fact 6: Minimum payments will make you poor.

If you borrow $10,000 on your credit cards at a 19.98 percent interest rate, it will
take you more than 37 years to get out of debt. The reason it
will take so long to repay that $10,000 is because you will also pay nearly
$19,000 in interest charges.

The minimum payment routine is how the credit card industry
stays in business. And they’re smart enough to know that if they tamp down that
minimum amount, you’ll keep spending money. One way to reduce that amount is to
make your payments more frequent (see Fact 5). If you want to know how much you
really owe, use the credit card calculators at
href=”http://www.cardratings.com/calculatorframe.html”>CreditRatings.com.

Once again the OCC has stepped in to either hurt you or help
you with this issue, depending upon how much debt you carry and your income
level. The OCC suggested that credit card payments must now reflect not just
the principle (which can account for a seemingly lower minimum payments), but
also the interest rate and any recurring fees. So
href=”http://moneycentral.msn.com/content/Banking/creditcardsmarts/P117014.asp”>your
minimum payment may increase as much as two- to four-percent or more if it
hasn’t done so already.

Fact 7: You can borrow money to make money.

In fact,
the only time it makes sense to borrow is when you purchase something that will
go up in value, like land or a house. Or, you can make money with
href=”http://www.yourcreditadvisor.com/blog/2007/02/how_to_make_mon.html”>balance
transfer arbitrage. In the latter case, it helps to have a good to
excellent credit rating, and it also works only if you don’t spend money on the
card.

Fact 8: If you don’t read the fine print, you’re the
loser.

Read your contract to understand that you may not be able to sue the
credit card company for any reason, even in a class action lawsuit. The credit
card company may also be able to raise rates, limit your current balance, or issue
new terms without your consent. If you cannot pay off that credit card, you are
subject to that credit card bank’s whims. You should be notified about changes
by mail — usually within fifteen days of any change — so be sure to read
anything that comes from your credit card company.

Fact 9: You can erase a fee, especially if you have good
reason.

According to David
Bach, the author of the book, Start Late, Finish Rich, you can get
credit card companies to waive both late and annual fees. You do this the same
way that you get your interest rate lowered (see Fact #3). He suggests that the
best time to get a late fee waived is the minute you see it on your bill. It
helps if you’re not consistently late and if this is the first time that you’ve
accrued a late fee.

Bach states that when you make these calls you should come
across with confidence and don’t let the credit card companies intimidate you.
Be prepared to talk with several people to get your issue resolved. And, if
they cannot hand out names, be sure to get something like an employee number.
If you’re keeping track of the people you talk with, Bach suggests, they’ll be
less likely to offend you.

Fact 10: You can manipulate credit card companies

This can be done simply
by telling them that you plan to consolidate your debt. When you try to negotiate
with credit card companies and they don’t want to meet your needs, tell them
that you’re prepared to move all your debt to a company that offers you the
lowest rate. You had better be prepared with information about this credit card
company before you talk, so that the person on the other end won’t call your
bluff.

Further, if that credit card company is willing to take on
your consolidation, ask them what kind of rate it will offer. Let them try to
sell you, and use one-half of the going national rate as your bargaining chip.
At present, that rate would be about nine percent. Learn more about
consolidation at
href=”http://www.debtsmart.com/pages/article_8_to_consolidate_070124707.html”>Debt
Smart.

Fact 11: You don’t need a college degree to stay out of
debt.

Yes, the fine print is hard to understand at times, and no one taught
you that it’s better to invest than to go in debt. But, you can learn now
through online courses, and most of them are free. The
href=”http://www.mymoney.gov/agency.shtml”>U.S. Financial Literacy and
Education Commission, for example, offers
href=”http://www.mymoney.gov/credit.shtml”>My Money: Credit, a page filled
with links to articles that can answer just about any question you might have
about your credit. You also can follow the advice offered in ”
href=”http://www.yourcreditadvisor.com/blog/2006/10/102_personal_fi.html”>102
Personal Finance Tips Your Professor Never Taught You.”

Fact 12: You can get help when all else fails.

Several online venues exist that can help you negotiate your way out of debt.
href=”http://www.debtadvice.org/”>DebtAdvice.org is one organization that can
help you locate a credit counselor in your area who will help you build a debt
management plan. But, be careful whom you work with, because you can hurt your
credit rating with some debt management plans, or you may end up with an even
larger interest rate. Be sure to ask questions before deciding to commit to any
one counselor or debt management plan.

Finally, before you begin to act on any fact listed above,
be sure to read the Federal Trade
Commission’s information about
href=”http://www.ftc.gov/bcp/conline/pubs/credit/crdright.htm”>Credit and Your
Consumer Rights. You’ll learn what about your possibilities and limitations
here, including information about how to deal with debt collectors. Like they
say, “Be skeptical of businesses that offer instant solutions to credit
problems: There aren’t any.” But, with patience and persistence, you can
overcome credit problems and make credit cards work for you rather than against
you.

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