Next year around July 2010 there will be new rules for credit card companies to abide by but until then consumers are subject to the rules and regulations as they are. Right now credit card companies can change your interest rate, and it always goes up, if you pay late with another credit card company or they suspect you have become a riskier customer even if you have never been late.
As a credit card customer there are a number of fees you can be subject to. For example if you make a payment late the credit card company can tack on a late fee which can range anywhere from $29 to $49.
There have been a number of complaints from credit card holders who feel they don’t really have enough time to mail out their payments from the time they receive their statements. Credit card companies have shortened the amount of time they give you get your payment in the mail. If this happens to enough customers there is a substantial amount of money to be made when all of those fees are accessed.
A late fee creates another problem. If you have a low promotional rate in the amount of zero percent or 3.99 percent the late payment you made automatically cancels your promotional rate and increases it to something astronomical. You new rate could be 24% or even 28%. If you compare the amount of interest you will pay with you new rate to you old rate you will really be surprised.
Let/s look at an example. Suppose you have a credit card balance of $5,000 and you annual percentage rate is 3.99 percent. If you send in a $200 payment the amount of finance charges that accrue in 30 days will be $16.39. Now your principal balance will be reduced by $183.61.
What if you interest rate is 28%? How much will you pay in finance charges using the same example? Your finance charges will now be $115.06. That’s almost $100 more. Your principal balance will be reduced by only $84.94 instead of $183.61 which is from the previous example.
So far we have a late charge and a higher interest rate. What else is there? What if you go over your credit limit? You could be assessed a fee of $39 or $49 it all depends on the credit card lender. The extra finance charges you pay because of an increased rate could put you over your credit limit and cause you to incur this fee.
Cash advance fees can also add up in a hurry. You may want to watch out for balance transfer fees. Some credit card companies will get rid of the maximum limit on fees and charge you the entire percentage. There used to be situations where you could do a balance transfer and it would be 3% of the balance you are transferring but the credit card company would max the fee out at $75. No matter how much you transferred you would only pay $75. With a $10,000 balance transfer at 3% your fee would be $300, but as previously mentioned the card company max this out so that you only pay $75. There have been indication that some credit card companies are doing away with the max rule and subjecting consumers to the entire amount which in this case is $300.
The terms and agreements on your credit card account can be changed at any time, therefore your rate can be changed at any time. I don’t know what all of the new rules will be when they are presented next year but they have got to work to the consumers advantage more than what we are seeing now.
Resource: working in the credit card industry; working in the banking industry.