Do you understand the terms of your credit cards? There were new laws enacted recently whose purpose was to clear up confusion about credit cards. But according to a survey we saw recently, only 47% of the people who responded said that they “completely” understood the term of their cards. Of that 47%, 73% said they were confused over interest rates and 31% said they did not understand late fees
The Credit Card Accountability, Responsibility and Disclosure Act
The Credit Card Accountability, Responsibility and Disclosure Act that was passed recently by Congress eliminated the ability of lenders to raise their interest rates without giving us advance notice. It also put limits on the penalty fees that could be charged in a single month.
This law was responsible for some other positive changes. For example, when we now receive reminders and notices about important credit card terms they must be easy to understand as mandated by law. This is generally referred to as transparency. However, how well we understand all of these terms and notices may depend on how we use our cards. As an example of this, suppose you pay off the balance in full on time every month. As a result, you may not pay a lot of attention to the interest rate you’re paying.
The banks and credit card providers are now providing more transparency when notifying us of interest rates, rewards programs and fee disclosures – not just because of the law but because it’s a way to keep consumers educated about their products and happy about their credit cards. The banks have learned that it’s just much cheaper to retain its customers than to get new ones. Keeping your customers happy is a low risk strategy.
As an example of this, Discovered Financial Services has a new credit card called Discover It. This card does not charge a late fee the first time that one of its customers misses a payment due date. It also doesn’t automatically go to a higher “penalty” interest rate such as the ones commonly applied by credit card companies when one of their customers misses a payment.
What American Express has done
Is another example of this, American Express has created a new website that explains how its customers can use its rewards. It also enables them to get account alerts through Facebook.
Far from perfect
The website Cardhub.com reviewed recently the websites of the 10 largest credit card companies to see how easy it would be to find information about their fees, interest rates, reward programs, balance transfers and other features. It found that while transparency has gotten better this isn’t always the case. Some lenders post information about the fee they charge for a balance transfer in one place and a separate place where there is information about the interest rates charged on balance transfers. This could cause customers to overlook the fact that balance transfers are assessed both a transfer fee and interest rates.
Consumer Financial Protection Bureau
This Bureau, which was recently created by Congress to monitor the lending practices of banks has been working to increase transparency for credit card products. This includes a sample credit-card agreement that would make it easier for consumers to find key information. Unfortunately, some banking industry people have concerns that if they were to use this agreement it would open them up to lawsuits if certain legal disclosures were omitted.
Read the fine print
While the information from credit card providers and banks may be becoming more transparent, there is no substitute for making sure you read and understand the fine print in your credit card agreements. It’s really important to understand your grace period and what happens to your interest charge if you’re late in making a payment. If you are considering making a balance transfer, be sure you know whether or not there will be a fee involved and what it would be. Some companies are charging as much as 5% on a balance transfer. This means that if you were to transfer $10,000 to one of their cards, it could cost you $500, which might be enough to wipe out any savings you would have enjoyed from making a transfer.
Don’t be afraid to ask questions
If you carefully read the card’s terms and conditions and still don’t understand all of them, don’t be afraid to ask questions. Call the company that issued the card and ask for explanations. This is definitely an area where ignorance is not bliss. If you’re ignorant of a card’s conditions and terms, you could end up having to pay a hefty fee or you could see your interest rates skyrocket. Here’s a video with more information about credit card fees that could help you better understand them.
Tips about credit
- Try for a credit card with enhanced security features
- Get your credit reports at least once a year
- Review your reports for errors
- Be sure to dispute any errors you find
- Know your credit score
- Write down a list of all your card numbers, expiration dates, and your credit card companies’ toll-free numbers. Be sure to keep this record in a safe place
- Read the fine print before signing and submitting an application
- Never write your PIN number on your card or a piece of paper you put in your wallet
- Don’t lend your card to anyone
Get your credit reports
If you’re thinking about applying for a new credit card, you should definitely get your credit score first. You can get it free from one of the three credit-reporting bureaus – Experian, TransUnion and Equifax – or from CreditKarma.com. While this will not be your true FICO score, it will give you a good idea of where you stand in terms of your credit worthiness and what interest rate you may be charged. If you were to find that you had a good credit score of 750 or above, you could use that as a bargaining point to get a better interest rate on a loan or maybe even on that new credit card. In addition, you should make sure you check your credit reports at least once a year. It’s always possible that one or more of your reports contain errors that could be hurting your credit score. If you find one, be sure to dispute it with the appropriate credit bureau and try to get it removed as this would have a very positive effect on your credit score.