Are you concerned you may not have enough money to buy a house, put your kids through college, or enjoy a comfortable retirement? For many people, a major obstacle to financial peace of mind is the misuse and overuse of credit.
Credit is out there and fairly easy to get. Like 99% of the population, most nurses use credit cards. But too few are aware of certain practices and policies that credit card issuers and banks use to increase their revenues. And for good reason: the companies don’t want you to know about them.
Unfortunately, your knowledge deficit can deepen your debt and dash your long-term financial dreams. Knowing the ins and outs of credit can help you avoid the costly traps described below.
Creditors like it when you go over your limit
Credit card companies charge fees when you exceed your credit limit. These over-the-limit fees (typically $35 to $39) are one of their main revenue sources. The others are:
- late fees
- interest on outstanding balances
- annual fees
- merchant fees.
Over-the-limit fees and late fees translate to huge profits. With millions of credit cards in use, these fees rake in more than $21 billion in revenue for credit card companies each year.
So next time you’re tempted to charge something even though you know you’re near your credit limit, think twice. If that purchase puts you over your limit, you’ll end up paying a penalty.
Many card issuers have early cut-off times for payment dates
As long as your payment arrives at the credit card company by the payment due date, you’ve paid on time—right? Don’t bet on it.
One of the best-kept secrets is that many credit card companies have an extra-early cutoff time on the payment due date. Your statement may say your payment is due by the 20th of the month, but what you probably don’t know is that the cutoff time on the 20th could be 8 A.M.—and snail mail rarely delivers by 8 A.M. If your payment arrives that afternoon, it’s considered late and you’ll have to pay a late fee. So be smart and send your payment early so it arrives before the due date.
If you pay your bills online, you’re not necessarily off the hook. Early cut-off times also may apply to online payments.
A minor slip-up with one creditor can raise your interest rate with all of them
Universal default is a little-known practice that many credit card companies use and that everyone needs to know about. Here’s how it works: Suppose you generally pay your bills on time, or even pay off your entire balance within 30 days. If so, you probably assume you’re in good standing with your creditors.
But few of us are perfect. Let’s say you’re late—just once—paying a bill, and this information gets recorded on your credit report. This single slip-up could push your interest rate higher, not just for that particular card but for any or all other credit cards you have. Any creditor whose card you carry could push the universal default button and increase your rate or change the terms of your account. And you’ll get little warning; the company simply sends you a letter stating it’s increasing your interest rate.
It’s not just a late credit card payment that can trigger universal default. You could get hit with higher across-the-board interest rates even if you’re late paying your utility company or a doctor’s bill.
Credit companies claim universal default is part of risk management. Some people say it’s all about making more profit. In the past few months, more media coverage has been directed at this practice, and Congress has been holding hearings on it and other credit card industry abuses. Citi Cards recently announced it’s ending its universal default practice.
Until all companies end it, here’s what you can do: Call the customer service phone number on the back of your credit card and ask whether the company participates in universal default. If it does, start looking for a new card. Better deals are out there; you just have to do some homework to find them. Also, send a note to your Congressional representatives urging them to enact laws to halt the practice.
Your creditor’s whims become your new rules
Every week, your mailbox gets stuffed with offers from credit card companies boasting of better rates, lower fees, better deals. Should you take the bait?
By all means, try to find the best deal out there. But do thorough research. Be aware that credit card companies are loosely regulated. They can change their terms and rules at any time. All they have to do is send you a written notice stating what the new terms and rules are. Of course, you can refuse to accept them. But does that mean you get to keep using the card under the more favorable terms? No; your account will be frozen at the original rate agreed upon—which means you can’t use it.
Credit card look-alikes have strings attached
Debit cards, which link directly to your checking account, bear a Visa or MasterCard logo. But they’re actually plastic cash—not credit. When you use them, the money leaves your checking account immediately. Also, debit cards aren’t covered by credit card provisions that limit your liability to $50 per card in case of theft or loss. So if your debit card goes missing, contact your bank to cancel it immediately, or risk being liable for a potentially major loss.
Another precaution: When using a debit card, make sure the cashier doesn’t swipe it more than once. Multiple swipings could mean multiple withdrawals—and when this happens, getting your money back is almost impossible.
Be credit savvy and money smart
Don’t let creditors get the better of you. Sure, credit cards are convenient, but they can become an albatross unless you use them wisely. Being credit savvy can help you salt away thousands of dollars. It’s a money-smart move that can help you pay for a home, college tuition, or a cushier retirement.
For more information on credit, visit www.BankRate.com and www.CreditCards.com. These websites (which aren’t owned by credit card companies or banks) offer the latest facts on interest rates, scams, card comparisons, financial calculators, and financial news in general. Think of them as required reading for the money-smart set. O
Judith Briles, MBA, DBA, is a full-time public speaker and author. Previously, she worked as a stockbroker for E.F. Hutton & Co. and headed her own financial firm. Ms. Briles is the author of 24 books, including Money $marts: Personal Financial Success in 30 Days! and Zapping Conflict in the Health Care Workplace. Her website is www.Briles.com.