Protecting your money by understanding common credit card tricks is not just smart it is necessary. Credit card companies, just like any other business, need to make money to survive. If you simply use your card for convenience and pay it off every month they do not make money.
You should know and understand credit card tricks so that you can avoid them.
Credit cards can be awfully sneaky for only being 86x54 mm pieces of plastic. Everyone knows about interest rates and annual fees but there may be the odd hidden catch you weren't aware about. While they aren't devastating or unfair, they can sneak up on unexpected for those who aren't aware about them.
Here is a list of the most obvious credit card tricks played by your card issuer:
- Credit Card Trick #1 - Repayment Hierarchy: If you have a debt of $5,000, and $2,500 is down to a cheap balance transfer deal, that is the bit your repayment reduces first, leaving the rest intact at the higher interest.
- Credit Card Trick #2 - The Low Minimum Payment: A really low minimum payment may look great, but it means the remainder of your loan lasts longer and accrues more interest.
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- Credit Card Trick #3 - Balance Transfer Fees: Beware the fees involved in transferring your balance from one card to another. It may wipe out any savings you thought you'd make.
- Credit Card Trick #4 - The 'Typical' APR: This APR (annual percentage rate) may not apply to you if you have a poor credit history.
- Credit Card Trick #5 - APR Increases: APRs can increase during the life of your debt. Regular loans are far cheaper.
- Credit Card Trick #6 - APR Calculations: Credit card issuers choose the factors that go to create their own APR, and there are more than a dozen ways to do this.
- Credit Card Trick #7 - Payment Protection: This is fear-selling. You are made to feel stupid if you don't take it out, but the issuer's rate will not be the cheapest. Some independent policies cover all the cards you own for a much lower fee.
- Credit Card Trick #8 - Missed Payments Punishment: If you miss a payment, your rates may change, and any special rates may be cancelled.
- Credit Card Trick #9 - Cash advance withdrawals: Use your credit card in an ATM and you'll need a second loan to pay off the cost. Rates are excruciating. The same applies for those credit cheques they keep sending you.
- Credit Card Trick #10 - Monthly Interest: These credit card tricks are very easy to fall into. Credit card companies advertise the lowest rate they are able to offer. This does not mean it is the one you will get. There are also usually different rates for different transactions. Cash advances are often higher then purchases and an additional higher rate may apply to debts that are past due.If a credit card issuer quotes a monthly interest rate as opposed to an APR, be wary. 1.5% monthly sounds low, but equates to 19.6% APR, which is above average.
- Credit Card Trick #11 - Reward Schemes: These are designed to get you spending on your card - period. Make sure that the Rewards you are likely to receive are greater than the Annual Fee.
- Credit Card Trick #12 - Unwanted Insurance: Certain unscrupulous credit card company employees may add on insurance you actually declined.
- Credit Card Trick #13 - Foreign Travel: If you take you credit card abroad, use it for emergencies only, or you will pay higher rates on purchases.
- Credit Card Trick #14 - Low-use Fee: Some issuers may charge you for not using your card for a while. Others threaten to take it off you. Let them. Don't be bullied.
- Credit Card Trick #15 - The Decreasing Payment Period: Be careful that the gap between your statement arriving and the minimum fee being payable does not start to close.
- Credit Card Trick #16 - Your credit card company is there to help you: It is easy to believe this trick because the companies make it seem like they are your friend. They advertise to you in a way that leads you to believe that they are there to make your life easier and give you rewards. They are not. Their purpose is to make money by charging you fees and interest and getting you to spend more than you can afford to repay each month.
- Credit Card Trick #17 - Payment protection insurance: Called PPI, this seems like a good idea. Ideally it is there in case you are unable to work due to illness, unemployment or an accident. PPI would kick in to cover your bill so that you avoid increased debt and marks on your credit file. Beware though because the payment protection insurance offered by the credit card companies is often very expensive and in the end may not be there to cover you they way you had anticipated. You will do better by finding an independent insurance option that serves the same purpose.
- Credit Card Trick #18 - Fees are almost unlimited: Credit card companies can charge you a multitude of fees. Some common transactions that are charged fees include late payments, going over your limit, and balance transfers.
- Credit Card Trick #19 - Overdraft from a Linked Account: While an uncommon feature particularly nowadays, make sure you know where your overdraft is going. Breaching your credit card limit and going into overdraft will incur fees and extra interest regardless, but if money is being taken from your regular savings/transaction account, it could catch you off guard and potentially expose you to more fees and financial stress.
- Credit Card Trick #20 - Excessive Revert Rates: When a balance transfer period or introductory low rate offer expires, in most cases, any remaining balance with revert to the standard interest rate on purchases. For instance, if you transferred $5000 to a credit card with a 0% p.a. for 6 month balance transfer offer, and still had $1000 left on your card after 6 months, the interest rate would typically revert to the standard rate of 9-12% p.a. for a low interest card. However, some sneaky financial lenders will jack up this 'revert rate' to a figure well above the purchase rate, such as the cash advance rate (which you can assume will not be below 19.99% p.a.).
- Credit Card Trick #21 - A Lack of Interest-Free Days: The majority of Australian credit cards offer up to 44 or 55 interest-free days on purchases as standard. From time to time you many find a card which seems to have every feature in the bag, only to realise it offers no grace period. No annual fee credit cards commonly fall into this category for instance. On the other hand, purchases made on a credit card with a transferred balance on it often incur no grace period on purchases. Watch out for any tricks your bank may have up their sleeve for opportunities to forego your interest-free day periods.
- Credit Card Trick #22 - Universal Defaults on Credit Cards: If Universal default applies to your credit card, your issuer can single you out and increase your rates and fees if you miss a repayment, carry large debt or do anything that would generally have a negative impact on your credit score. As far as credit card rates go, your issuer can adjust their standard variable rate at any time across all card holders, provided they give at least 14 days notice. Universal defaults may or may not be mandatory for your issuer to inform you of a rate hike in advance. However, if the concept of 'universal default' is hidden somewhere within your fine print, either toss out the card or ensure you're a very responsible and consistent credit card user. To reduce the amount of fees you have to pay, opt in for a credit card without an annual fee.
Despite all the credit card tricks used by issuers, there are ways to use these to your own advantage and if you've been reading Credit Card Finder for a while you already know how. Let's face it, we do live in a world where money is king and naturally every service and product issuer is in it for the money - why else would be bother. There is nothing wrong with this, just be smart, choose the right credit card with our help and you can laugh all the way to the bank.
Once you have a credit card it is your duty to pay attention to any credit card tricks. If you are aware of them you can avoid the pitfalls of credit card ownership and the debt that too often comes along with it. Read all the fine print and make sure that you understand the wording so that you do not fall victim to any credit card tricks. We hope you've found this useful in the search for the right credit card for you.