Beware: 5 credit card pitfalls to avoid
Filed under: Credit, Credit Reports, Credit cards
Just when you thought new legislation meant plastic was safe. Credit card companies are finding loopholes in the new Credit Card Act of May 2009. Their motive: Making up for lost revenue and side-steeping the reform.
The first part of the law rolled into effect in August, and required banks to give customers more notice before making major changes, like rate hikes, to their accounts. In February 2010, phase two comes into play with issuers being imposed limits on raising rates on existing card balances. Finally, the third phase will take effect in August 2010, when some penalty fees are capped.
Sounds good, right? Not so fast. Analysts caution every law -- even a good one -- is vulnerable. And fueled by the "where there's a will, there's a way" mentality, credit card companies are determined to take as much of your cash as possible.
Here's a few things to avoid.
Fishy Fees
Because the new laws can only tackle existing fees, credit card issuers are scrambling to dream up new fees they can tack onto your account. Annual fees seems to be an easy target.
Earlier this month, some Bank of America customers received a surprise, and not the good kind. BofA notified them that their once "no-fee" cards were converting to ones with annual fees. BofA spokesperson Betty Reiss said this is part of a "test" that affects 0.5% of all consumer accounts. The fees, ranging from $29 to $99, will be assessed to accounts based on risk and profitability.
More monthly moolah
One way to improve cash flow is demanding more money every month. And by raising monthly payments, issuers not only generate more cash, they increase the odds a customer won't be able to make their monthly payment and will fall delinquent. Resulting in even more fees and interest-earning penalties.
Chase is applying this theory to some of its accounts, raising the minimum rate some customers need to pay from 2% to 5% of the balance. On a $5000 balance, that's a $150-a-month hike.
Reduced rewards
It no longer pays to be good. Those in-flight upgrades and "free" hotel stays once earned as incentives are fading out of sight. American Express recently scaled back its Blue Card cash-back program, offering customers $1.25% instead of 1.5%. the catch: You've got to pay your bill on time. Otherwise, you won't accrue points without paying a $29 reinstatement fee.
Although it's not officially a "pitfall," WalletPop's Martha White discovered an interesting nugget while researching upcoming articles on the best and worst credit cards. White found that the Discover Motiva card puts a new spin on rewards. It offers customers paying their bill on time for six consecutive months an interest free seventh month as a reward. Not really cash in hand. But at least it's less cash going out.
Lower Limits
Don't be surprised if you've got less credit than you did a month or two ago. According to the Center for Responsible Lending, some credit card carrying consumers have seen their limits lowered by as much as 75%. Again, for no apparent reason. Bad news for holiday shoppers hoping to swipe their credit cards at the cash registers on Black Friday.
Rising Rates
The new law protects the rates on current balances, but says nothing about those for future purchases. And analysts caution those rates can soar. Lucy Elliot knows firsthand just how high those rates can climb. "The rate on my Visa jumped from 12.99% to 17.99% and I've never missed a payment." When she called to inquire about the hike, Elliot was told she owed too much "across the board" and thus her rate was being "adjusted". "It was re-adjusted 4 months later to 19.99%. It's criminal what they're getting away with."
The bottom line
Do your homework. Monika Ecsedy Nagy, CEO of FinancialFutureCoach.com says consumers should read their statements and disclosures every month. "Even all that fine print." Good advice since that's often where the language for these pitfalls is buried.
Nagy also suggests comparison shopping. "There are still some instances in which consumers can get a good, fair deal." True enough. But she says "you're going to have dig deep to find them."
Gina Roberts-Grey is a freelance writer specializing in consumer issues.
Reader Comments (Page 1 of 1)
10-27-2009 @ 10:46AM
Kathryn said...
Shouldn't have credit cards in the first place.
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10-27-2009 @ 10:55AM
V Samuel said...
Your article indicates no apparent reason for the line of credit reduction but my recent experience with credit line decrease tells me it's another method for creating revenue. The limit was reduced by fifty percent without prior warning. Had I not been declined for larger purchase I would have gone over my limit = overlimit fee. Going over Iimit changes eligibIility for promo rates = higher interest charges. It all equates to more money for the card company and bad news for me (consumer).
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10-27-2009 @ 11:24AM
Rosalie French said...
Chase more than doubled my minimum payment and I am a senior citizen living on (or trying to) social security. Obviously, my budget doesn't hav e an extra 200 dollars available but I'm lucky enough to have other cards that haven't treated me like Chase has so they will be getting my business. It's like stealing--and by the way, I wouldn't have a B of A card for any reason. They increased my interest rate from 0% to 30% for no reason. They are the true rapers!!!!
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10-27-2009 @ 12:53PM
Jayvee said...
Target is the only company I have found that is being responsible about lowering limits. People complain about the too high rates so lowering the risk of having to pay too much in interest charges is what the end result for the consumer is here. How can that be bad? Also they do not charge the required over the limit fee because of the lines being lowered. Now that's compasion and fair I'd say! No Rewards benifits are being adjusted or taken away due to being over the limit either. I'm sticking with my Target card!
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10-29-2009 @ 10:33AM
Judy said...
I have 2 cards with Chase because of their merge with Washington Mutual. The one that had been WAMU has a high limit but zero balance. Chase lowered my limit by 50% stating I apparently didn't need that high limit on that card since I wasn't using it. And I am not using credit much, I am trying to pay my cards off with the idea of purchasing a home in the future. But by them doing that it changes your debt ratio which lowers your credit scores. I feel like I am being punished in a way by being more responsible. They will be able to charge a higher interest rate if your credit score is lower, making them more money. Target also drastically reduced my limit, again because I hadn't used the card in over a year and it had a zero balance. Some reform.
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10-29-2009 @ 4:43PM
jill said...
Great tips!
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10-29-2009 @ 6:49PM
John said...
Good to know that the government's laws are hurting people who actually paid on time and accrued rewards. The only people this law benefits are the irresponsible. Pathetic.
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10-29-2009 @ 7:04PM
Rob said...
I too had a credit card with Washington Mutual (WAMU) before they were bought out by Chase. In August of 2009, Chase felt it necessary to close my account completely.
I have made every payment to every creditor on time, and in excess of the minimum payments for the past 6 years straight - no slow pays, no late pays, and I regularly pay off my credit cards every few months.
My credit score has actually gone up almost 80 points since I opened the account with WAMU, yet now is gone and my credit score tanked because of it.
I am so upset about this I could SCREAM (and have numerous times!).
I *DO* have some slow/late payments on my credit from 6+ years ago, but I only got the card 3-4 years ago and things have been perfect since.
**CRAZY!
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10-29-2009 @ 10:38PM
Ed said...
I have/had a CitiCard. It originally had a 10K limit. A few months ago they suddenly lowered the limit to about $200 over my balance, which was about $5300. They didn't tell me this, of course. I just happened to notice, and it is a good thing I did, so I could pay down my balance to avoid going over the limit.
Now just the other day, I get a letter stating that they're raising my fixed 9.99% interest rate to a variable rate of currently 29.99%. I have auto-payments setup on that card, so have never once been a single day late. Since I have a 5K balance, I had no choice but to "opt-out" and cancel the card, hurting my credit rating even more.
So that day I check with my Barclay card, to see if I could get that 20% rate lowered. Turns out they canceled that card for non-use a day before that.
The next day, I got a letter for one of my two Chase cards, which raised my rate to 29.99%.
At this point, I have a single "good" card left, with a 4K limit and a 13.5% rate. I am just waiting until they kick that one up, any day now.
My credit score *was* good. Now it is in the tank through no fault of my own. This is all just so wrong.
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10-30-2009 @ 4:23AM
Joan said...
Judy I know exactly what you're talking about. I just received a letter from CHASE saying they have CLOSED my account all together, their reason? Lack of use!! I had a 7,000. credit limit. I have 3 credit cards with only a balance on one of them. I never miss a payment, never late, have an excellent credit score of 800, and this is what they do to me without any notice. Now my credit score will go up because my credit/debt ratio will drastically decrease, since 7,000. has instantly been removed from my overall available credit. So for being an excellent customer, this is how they repay me by causing my credit score to plumett!! What's worse is, our tax dollars bailed out these banks and this is the thanks we get. I'M PISSED!
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10-30-2009 @ 4:31AM
Joan said...
CORRECTION on my previous post. That should have read "Now my credit score will go DOWN (not up)" because of the credit/debt ratio AND because they closed the card instead of me. So now I go from a score of 790 or 800 to God only knows how low it will go now. And right here at the beginning of Christmas holiday season and my daugther is getting married in several months. Lack of use being the reason they closed the account......how the hell do they know you're not about to use it, the least they could do is send out a letter stating their intentions if you don't use it.....then people would have an option. THE AMERICAN PEOPLE NEED TO BAN TOGETHER AND BRING THE WAY THE BANKS ARE NOW DOING PEOPLE DUE TO THE NEW CREDIT CARD LAWS COMING INTO EFFECT. I WOULD HAVE BEEN BETTER OFF IF THE GOVT. HAD JUST LEFT THINGS ALONE!
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10-30-2009 @ 5:44AM
Barbara said...
Chase stinks... went in to make an online payment and noticed my credit limit was reduced by $1,000 (from $11K). Couldn't figure out why? I always make payments on time, and well in excess of the minimum. So I emailed them. Their response: too few credit cards (Chase is my only one, granted, and I use it only for emergencies) and the balance is too high relative to my total credit. Well, because they've lowered my credit limit, it's even higher than "too high" now isn't it? I can't wait till I've paid this dang thing off. I hate them.
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