2006-09-08 / Community

Pheffer: Be Aware Of Credit Card Tactics

Assemblywoman Audrey I. Pheffer wants consumers to be savvy of the credit card tactics that are being used and what they can do to recognize these schemes.

These days, credit cards seem to be a necessity of modern life. In fact, the average American has between four and five credit cards and uses them in one out of four transactions. Unfortunately this necessity is becoming increasingly expensive.

"Credit card companies have an array of tactics that can increase your fees and lighten your wallet, but fortunately if you understand their rules, you can save money and win the credit war," said Pheffer.

Universal default penalties are one of the methods that credit card companies use. They regularly check customers' credit reports for late payments on their other bills. Any late payment can be used as a reason to increase a customer's credit card interest rate, even if the customer never made a late payment to the credit card issuer. A recent survey stated that in 2004, 44% of credit card companies had universal default penalties. The Assembly is working to end this unfair business practice. Assemblyman Peter Rivera, I, and others sponsored legislation that would prohibit universal default penalties in New York (A.809-A), which the Assembly has passed and is awaiting action by the Senate. Until we are successful in prohibiting this practice, if you don't want your interest rate to rise, make sure to pay all of your bills on-time.

The bait-and-switch offer is also sometimes used. Companies may advertise credit cards with an amazingly low interest rate, but the fine print states that if the applicant doesn't qualify for the premium interest rate, another card with a higher interest rate may be issued instead. To protect yourself, after you apply for a credit card, compare the interest rate that you were offered with the interest rate you received. If they are not the same and you are not satisfied, you may wish to cancel the card.

If you want to save money on your credit card bill, you will definitely want to pay close attention to your credit card's grace period, which is the period of time during which your transactions accrue no interest. Credit card companies used to offer a thirty day grace period, but nowadays many credit card companies offer grace periods of twenty-three days or twenty days. Some credit card companies offer no grace period at all.

"Paying your credit card bill late is one of the worst things you can do if you want to save money on your credit card bill," said Pheffer. Card issuers charge hefty late payment fees, which generally range between twenty-nine and thirty-nine dollars. Additionally, after just one or two late payments, most credit card issuers will raise the credit card holder's interest rate, which will cost even more in the long run.

Many companies entice customers with rock-bottom introductory rates for balance transfers, but that low rate often comes with a high transfer fee, often between three and five percent. If you are transferring a large amount of money, say for example $1,000, the transfer would cost you $40. Before transferring a balance, make sure you read the fine print and do the math to see if the transfer will really save you money.

Credit card companies are also tricky when it comes to payment allocation. Generally, your payment will be allocated in way that will maximize their profits. If you are paying off a balance transfer or purchases that were made during a promotional period and you charge purchases in addition to the balance transfer or after the promotional period, your payments will be allocated to the part of the balance with the lowest interest rate, allowing the balance with the higher interest rate to accumulate and compound interest.

To learn more about your credit cards and their rules and regulations, ask your credit card company for a copy.

For more information, consider visiting the New York State Consumer Protection Board's website at www.consumer.state.ny.us .

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