| This month on our two credit card statements | | | | |
| are notices informing us that as of Oct. 1st | | | | Now that we understand what's going on we can |
| we may be charged "more than two" late fees | | | | try to help Gwen avoid problems. The first |
| or over the limit fees" per month. What's | | | | thing is to recognize that the card issuers |
| going on? | | | | get to make most of the rules. And, whether |
| | | | those rules are fair or not isn't relevant. |
| Gwen | | | | The best she can do is to avoid getting hurt |
| | | | by those rules. |
| It's estimated that Americans charged $1.8 | | | | |
| trillion in 2005 on the 690 million credit | | | | Get familiar with each account. The only way |
| cards outstanding. According to a Government | | | | to know exactly what's allowed is to read and |
| Accountability Office study released in | | | | understand the "Card Member Agreement." Tough |
| September, 2006, 13% of credit card users | | | | duty. But necessary. |
| were assessed over-limit fees and 35% were | | | | |
| assessed late fees in 2005. So Gwen has a lot | | | | Watch out for unexpected fees. Like for |
| of company. | | | | balance transfers or increasing your credit |
| | | | limit. Know what could trigger fees or |
| Let's try to do three things. First, | | | | penalty rates. |
| understand what these fees are. Next, see how | | | | |
| fees are changing. And, finally, what Gwen | | | | Know exactly when your payment is due. Keep a |
| can do to keep from being hurt. | | | | list of due dates for your credit card |
| | | | accounts. If you don't get the bill, it's |
| Credit cards have always had fees. Some, like | | | | your responsibility to contact the company |
| for a late payment, are understandable. | | | | and still make a timely payment. |
| Others came along as credit cards took on new | | | | |
| capabilities. Think cash advance and balance | | | | If possible, the best thing to do is to join |
| transfer fees. Still others, like over-limit | | | | nearly half of the cardholders who paid |
| fees, seem like they shouldn't be possible. | | | | little or no interest. That's because they do |
| You would think that they wouldn't allow you | | | | not carry a balance. |
| to borrow more than your limit. | | | | |
| | | | Obviously, for many people that's not |
| There are also 'penalty interest rates'. If | | | | immediately possible. Then it's important to |
| you're late with a payment or go over your | | | | send in your payment as soon as possible. |
| credit limit you could see your rate bumped | | | | Being seven days early is better than being |
| to 30% or more. | | | | one day late. |
| | | | |
| The 2006 GAO study looked at fees and | | | | If you find it difficult to get your payment |
| penalties. It said that not only were fees | | | | in on time, you might want to authorize the |
| increasing, but the credit card companies | | | | credit card company to automatically debit |
| were doing a lousy job of informing consumers | | | | your checking account for the minimum payment |
| about those fees. | | | | each month. You'll probably pay for the |
| | | | service, but that way the payment can't be |
| The credit card companies are obligated to | | | | late. |
| tell you about any fees or penalties and how | | | | |
| they're triggered. Some fees, like paying | | | | Talk to your card issuer. If your due date |
| your credit card bill by phone, are sometimes | | | | falls at a bad time of the month, they'll |
| not clearly disclosed. What Gwen received | | | | move it. |
| with her statement was a notice of a change | | | | |
| in how fees would be charged. And, as long as | | | | If Gwen is near or over the limit on any |
| she's notified they can get by with almost | | | | card, she should try to shift part of the |
| anything. | | | | debt to a different card. Some fees are even |
| | | | being assessed when an account is merely |
| Late fees have nearly tripled in the last 11 | | | | getting too close to the limit. Your best bet |
| years. And many cards have adopted a | | | | is to keep balances to less than half the |
| 'universal default clause' that says a late | | | | available credit. |
| payment on any card will trigger the penalty | | | | |
| interest rate. | | | | Although the higher late fees are |
| | | | infuriating, they do minimal damage. The real |
| Credit card companies say that the higher | | | | problem is in the universal default clause. |
| interest rates and fees are appropriate based | | | | Most credit card accounts now have a |
| on risk factors. If it weren't for the higher | | | | universal default clause. |
| fees, they claim that they wouldn't be able | | | | |
| to offer credit to riskier consumers. | | | | Suppose your rate went from 15% to 30% on |
| | | | every open credit account. For every $1,000 |
| In fairness, the GAO's survey found that (at | | | | you owe, an extra $150 interest would be |
| least among 6 of the largest card issuers) | | | | charged each year. So if you're the type of |
| 80% of accounts paid interest rates of less | | | | person carrying a $10,000 balance, that one |
| than 20%. So the vast majority of card users | | | | late payment could cost you $1,500 per year. |
| are not paying penalty rates. | | | | For as long as you have the balance! |
| | | | |
| But the study also found that the disclosures | | | | Gwen is right to pay close attention to her |
| were written well above the eighth grade | | | | credit card accounts. With newer fees and |
| reading level and (surprise!) featured small | | | | penalty rates in place, it becomes more |
| print. They recommended that the Federal | | | | important to manage your credit. In fact, |
| Reserve Board revise rules on credit card | | | | it's critical to your financial wellbeing. |
| disclosures. | | | | |