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10/24/07

The Dirty Little Secrets of Credit Cards

There are many “dirty little secrets” that credit card companies hide in the fine print of your credit card agreement. Some of these secrets, although specifically stated in you credit card agreement and within the power of your credit card company to enact, are rarely used by the credit card company.

However, there are two secrets that a credit card company will not tell you. You have to scour your credit card agreement to even find mention of these two provisions to which you agreed. These two provisions are devious and are created solely to squeeze as much money out of you as possible.

(1) CASH ADVANCE INTEREST RATES

If you look at your credit card statement, you will see a section that shows you your interest rate (if it is too high, call the credit card company and get it reduced). There are usually two interest rates shown: (1) your purchases interest rate; and (2) your cash advance interest rate. I can almost guarantee that the cash advance interest rate will be several points higher than your purchases interest rate. For example, you regular purchases interest rate may be 12.95% while you cash advance interest rate may be 19.95%. Why the big difference? This difference exists because your monthly payments will NOT count towards your cash advance balance until you fully pay off your regular purchases balance!

Basically, while you are paying down your lower interest balance, you are get nailed by an interest rate that is 7% higher (in this example) then your normal rate. I hope you do not owe a lot of money on the card on which you took a cash advance or that the cash advance you took was very small.

(2) UNIVERSAL DEFAULT

Universal default is a credit practice where you will be in default on one card because you are in default on another unrelated credit account. For example, let us pretend you have two completely unrelated credit cards; Credit Card A and Credit Card B. Further, let us pretend that Credit Card B has a universal default provision in the credit card agreement. Now, pretend that you are late or default on a payment to Credit Card A. The credit card company that gave you Credit Card B can now put Credit Card B into default even if you have never missed nor been late on a payment to Credit Card B!

The effect of this is that it is possible for you to get nailed by a credit default fee for Credit Card B (even though you have never missed nor been late on a payment to Credit Card B) and that another negative impact will occur on your credit report.

Watch out for these dirty, credit card secrets that are buried in your credit card agreement. They can really sting you if you do not take notice of their existence and effect.

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