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