Credit cards can be wonderful tools when used correctly. On the other hand, they can get you into a world of trouble with impulse purchases and overspending. In fact, the average American household carries about $6,473 in credit card debt.
Whether you have this much debt or not, here are a few key things you should know about your credit card(s). There is probably at least one fact you’re learning for the first time.
Fact #1: Credit card issuers can increase interest rates as much as they choose
This might come as a surprise. You likely got a credit card at a great interest rate. But did you know that the banks issuing the cards aren’t bound by state laws to cap their interest rates? They are actually free to increase rates on a whim.
If you read your card’s terms and conditions, you will likely find that the interest rate is safe for a limited amount of time—such as throughout the first year. But once that time has passed, the credit card company can increase your rate even if you have been an exemplary customer.
The good news is that an infinite number of credit cards exist in the U.S. today. And all of the companies want your business. Great competition helps keep rates within a certain range since no one wants to be known as having the highest APR.
Fact #2: You may be able to refuse to accept the new rate
Yep, you read that right. If your credit card company decides to hike your rate, you may be able to actually say “no.” If you choose this strategy, the issuer is likely to make a deal with you and let you stay at your old interest rate. However, it’s this should usually be provided in writing.
Fact #3: Your credit card gives you some protections
Most if not all credit cards come with important protection. Suppose you purchase something online, but you never receive it. Or perhaps what you ordered when you were in the store is not what you received. Or maybe you found an item on your bill that you didn’t authorize.
Don’t worry, your credit card will likely protect you against these issues. For example, if a person makes purchases you didn’t authorize on your stolen or lost credit card, typically your maximum liability is $50.
You may be able to dispute the charge and seek a refund if you are unsatisfied with the purchase. However, it usually should cost at least $50, and within 100 miles of where you live. In addition, you typically must have first tried to fix the matter with the company that sold you the product.
Fact #4: Your fixed rate may not be fixed at all
Your card might have a fixed rate right now but that doesn’t mean it will always be that way. Your card issuer can not only change the interest rate, but they can also change the way it is calculated.
This means that your fixed-rate card could transform into a variable-rate card sometime in the future. However, if your interest rate increases due to the change, the card issuer generally provides 45 days’ notice in advance.
Fact #5: Your balance can be a tricky issue
Some credit cards may advertise that they have no spending limit. However, they may restrict the amount of money you can carry forward from one month to the next.
Here’s an example of how this can be risky. Let’s suppose you charge $7,500 on one of those no-limit credit cards, but you’re only allowed to carry $5,000 over from month to month. This would leave you on the hook for $2,500.
Be sure to carefully read the terms and conditions of any credit card before you apply. That way, you can avoid unpleasant surprises. And don’t just accept any interest rate changes now that you know how to fight them.