In general, most of us have a pretty close relationship with our credit cards. It’s hard to get through a day without breaking out the plastic at least once. We all try and do the right thing by paying off our monthly balances each month and each of us probably know all of our credit cards personal details off by heart. Unfortunately the credit card companies are not as attached to us as we are to our credit card. Read on to find out some interesting facts that your credit card provider probably would rather you didn’t know.
1. Very short interest free periods.
How many times have you made a big ticket purchase and have been thankful for the interest free period? Say you charge $2,000 to your credit card and pay $250 by the due date to hold over your creditors. Most credit cards can carry interest free periods of up to about 55 days, allowing you time to pay off the remainder balance interest free. But in the spirit of profiteering, many providers are reducing the interest free periods to just 40 days, while some credit card providers are doing away with them altogether. That means you’ll get charged interest on every purchases, even if you make timely repayments. Make sure you check how many interest free period days your card company offers and if you think it’s not fair, swap to a provider that offers a better interest free period.
2. Fixed interest rates aren’t really fixed.
Credit card companies can raise your credit card interest at any time. This information isn’t necessarily an obvious secret, but it’ll be hidden so deeply in the fine print of your cardholder’s agreement that credit card companies are hoping you will miss it. There are plenty of deals out there that entice us to sign up on low interest rate periods for allowing them to take on another provider’s credit card debt. Generally after the low interest period that is where the great rates that lured us in stop. Banks will generally notify you that your interest rate is going to rise on the bottom of your credit card statement. A lot of people miss this notification due to people having e-statements set up that they never open up and read. Gone are the days that most of us received our credit card statement in the mail for us to open and read our transaction list. Technology has made this very easy for the credit card providers and us very lazy scrutineers.
3. Twice the interest in one month.
Another one-two financial uppercut comes in the form of a legal manoeuvre which allows your card company to impose two months’ interest for just one month of late balance payments. For example: You’re charged twice the interest for a partial balance payment in October even though you paid on time in September. This is called double-cycle billing whereas the card issuer looks at your average daily balance over two consecutive months and charges you higher interest based on the month you carried a higher balance. It’s not even the interest that makes this a problem, but the principle of being punished for good financial behaviour in the first place.
4. One late repayment may equal two penalties.
In a perfect world, one late repayment equals one penalty fee and on time repayments equal zero fees and charges. In our imperfect world, you can be penalised with two surcharges on one delinquency. That’s right a double whammy. These can come in the form of late repayment fees and a default interest penalty rate being put on your account. This default interest rate may be as high as 29.99%.
5. Minimum repayments can last for years and years.
This is unfortunately the nature of the credit card beast. The longer you stay in debt, the more interest the credit card companies can charge you and the more money they make. In the past, credit card holders had a higher minimum amount imposed on them that was required to be paid off each month. This became an issue for the credit card issuers because people were paying off their balances too quickly which meant that the credit card companies were not making enough money. Their fix? They lowered the monthly minimum repayment even more. These lower repayment minimums meant that people could spend even more money on credit cards and still afford the minimum repayments. Experts maintain that this move by the card companies added hundreds of thousands of dollars in interest income to their bottom lines virtually overnight. The minimum repayment schedules on offer today could see people paying off their credit cards for more than 15 years. And that is if they don’t add to the balance.
6. No card limits, just with limits.
Many people in posession of a no limit credit card discover that they actually have revolving spending cap hidden within the system. For example, you could spend $15,000 on purchases and find that you are stuck with a balance of $5,000 plus interest to pay off immediately. Why is this so? Because your credit card actually has a preset limit of only $10,000. Your credit card company advertised your plastic as no limits, but it’s not always the case. Before snatching up a no limit credit card, ask your provider if the limit is predetermined and be careful not to spend beyond that amount.
7. Late repayments to any creditor can hurt your credit score.
If you take one thing away from this article please let it be that paying down your debts fast can help you maintain a great credit score. One late repayment, be it on your credit card, car loan repayment or other loans can be listed on your credit file and in some cases used by other credit providers when they are assessing your loan applications in the future.