Mortgage : Home Loans : Refinance : Home Equity Loans

By ANLeahy

Credit Traps Snag Consumers
By Gerri Detweiler

Nearly 20 years ago I worked for a small consumer advocacy
organization in Washington, DC. Each week we received sacks
full of mail from consumers across the country requesting
our list of credit cards with low interest rates and no
annual fees. If you wanted a low interest rate on a credit
card back then, you often had to apply to a bank in Arkansas
where interest rates were capped by state law.

Those were the good old days.

Now, interest rates range from zero percent to a high 39
percent. It’s tougher to find (and keep) a good credit
card than ever before. That’s because there are many new
traps that can snag unsuspecting consumers.

At the top of the list is the “universal default clause”
which allows issuers to monitor you credit report and raise
your rate if you are late on any bill that appears on your
credit report. One major issuer, for example, will hike a
0 percent rate to 24.99 percent if you slip up!

In fact, true “fixed rates” are rare. Many consumers don’t
realize that a “fixed” credit card rate isn’t the same as,
say, a fixed-rate mortgage. In most states, card issuers
can raise the interest rate on a fixed-rate credit card with
just fifteen days’ written notice. The new rate can
typically apply to existing balances as well as new
purchases.

Fees are also on the rise. Take late fees, for example,
twenty years ago a late fee on a credit card was still
fairly unusual, and typically wasn’t charged unless you were
15 days late with a payment. Now you often must get your
payment to the issuer by a certain hour in the morning or
you’ll be charged a late fee of as much as $39. Go over the
limit and you’ll not only pay more interest, but a steep
over limit fee as well.

Foreign travelers are often charged a “currency conversion
charge” of 1 - 2 percent of the amount of their purchase.
As the result of a class action !
lawsuit,
Visa and MasterCard
were ordered to provide refunds of those fees in certain
circumstances. The problem wasn’t that the fees were
illegal, but it was determined they weren’t properly
disclosed. The case is being appealed.

Here are some findings from the nonprofit Consumer Action’s
annual survey of credit cards (http://www.consumer-action.org/):

– The vast majority of surveyed cards have significantly
higher penalty rates that are triggered by one or two late
payments in a period of six months to a year.

– One-fifth of surveyed issuers have shifted to tiered late
payments, which Consumer Action interprets as a deceptive
way of charging higher-than-average late fees.

– The number of cards with $35 late fees has more than
doubled from last year.

– More than half the cards surveyed require cardholders to
pay only 2 percent of the monthly balance each month - a
disturbing trend that dramatically increases the overall
interest paid by cardholders.

– More than one-third of surveyed institutions will not
provide a firm annual percentage rate (APR) until they have
screened the applicant’s credit history. Instead, they give
only a meaningless range of rates before screening, which
makes comparison shopping difficult if not impossible.

Don’t get me wrong - I am not saying that credit card
companies should not make money. In fact, easy access to
credit has helped fuel our economy, especially when the
going gets rough.

But many consumers now are literally trapped by high-cost
debt with few options. I’ve spoken to consumers who feel
they have no choice but to file for bankruptcy because their
credit card companies all raised their interest rates to
between twenty and thirty percent, and they simply cannot
manage to pay the balances down.

With all the landmines out there for credit card users
today, the best strategy is still to !
pay down
debt as
quickly as possible and limit yourself to a couple of cards
to avoid problems.

Sometimes, of course, that’s easier said than done!

For more information on ways to build great personal and
business credit, visit http://www.businesscreditsuccess.com/.

————————————————–
About the Author:

Gerri Detweiler is considered one of the country’s top
credit experts. She has been interviewed for thousands of
radio, television and print newstories including USA Today,
The Wall Street Journal, The New York Times, Dateline NBC
and many others. She has testified before Congress several
times and worked on reform of the national credit reporting
laws. Email - gerri@…


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This entry was posted on Saturday, January 6th, 2007 at 4:43 am and is filed under Refinance. You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.