Alarming Credit-Card Tricks

Found an article titled Alarming Credit-Card Tricks at Smart Money that states "credit card companies are finding creative new ways to separate you from your money." Oh, great, that's all I needed to hear. Those sneaks are getting sneakier. Here's the scoop:

"According to the 2005 Credit Card Survey, released Thursday by Consumer Action, a San Francisco-based advocacy group, some of the new tricks are among the most aggressive yet. Companies have begun increasing borrowers' interest rates to 30% or more simply because they've applied for a mortgage or car loan, or because the company has decided the borrower has too much available credit. Consumer advocates warn of other trends like socking people with overseas fees even when their purchases are made with U.S. dollars, and penalizing them for not using their credit cards.

"It's like a trip wire," says Curtis Arnold, publisher of Cardratings.com, a credit-card information web site. "If you're not a very diligent, savvy consumer, you're more than likely to get tripped at some point." "

According to Smart Money, here are five of the sneakiest tricks that credit-card companies are pulling on unsuspecting customers:

1. Applying for a Mortgage? We'll Bump Up Your APR -- Creditors often increase your interest rate when they notice negative activity — say, a late payment or an over-the-limit fee — on any of the accounts that show up on your credit report. This practice, known as "universal default," has become increasingly prevalent during the past few years. Today, 45% of credit-card providers engage in this practice, according to Consumer Action, compared with 39% in 2003. But while universal default has existed for some time, Consumer Action's 2005 survey found an alarming new trend: You no longer need to do something wrong to be hit with a universal default rate.

According to the survey, 43% of creditors who practice universal default would enforce it if they deemed that a cardholder had too much overall debt. And 33% would do it if they thought the consumer had too much available credit. Even things like getting a new credit card (33%) and an inquiry related to a car loan or mortgage (24%) can trigger universal default.

2. Beware Two-Cycle Billing -- Two-cycle billing is a sneaky and complicated practice. It affects people who usually pay off their balance in full each month, but end up in a situation where they have to carry a balance for one or more months. (This is a likely scenario around the holidays, for example, when Christmas presents add up and people find themselves unable to pay the whole bill at once.) A cardholder in this situation will end up paying more in interest than with a credit card that doesn't have a two-cycle billing.

"That's where it gets you," says Gerri Detweiler, author of "The Ultimate Credit Handbook" and founder of DebtConsolidationRX.com. "It affects consumers in a limited number of circumstances, but it can be expensive." Her advice: Avoid credit cards with two-cycle billing.

Last year, only two providers — Discover and Bank One, which consequently merged with J.P. Morgan Chase (JPM) — used two-cycle billing, according to Consumer Action. This year, the number has grown to five: Chase, Discover, Providian, National City Bank, and First National Bank of Omaha.

3. Prepare to Pay More -- In 2003, banking regulators issued a directive requiring banks to change their minimum-payment formulas over the next few years. The goal? To make people's minimum payments higher to enable them to pay off their balance faster. Minimum payments are going up at many banks — a trend that will continue into early 2006, credit experts say. That, of course, isn't entirely bad news. With minimum payments as low as 2% of the outstanding balance in recent years, many consumers were unable to make a dent in their balances and watched their debt soar. "Long term, [the new rules] will keep more people out of bankruptcy," says Travis Plunkett, director of the Consumer Federation of America. "Short term, we have a difficult situation because issuers have lulled many consumers onto an endless debt-repayment treadmill."

4. Overseas Rip-Offs -- Foreign-currency-exchange fees are also on the rise. Not long ago, many credit-card issuers — particularly big banks — charged fees equaling only 1% of overseas purchases, effectively passing on the 1% that Visa and MasterCard charge the bank for those transactions. Recently, however, most of the big banks — including MBNA (KRB), Bank of America and Citibank — have started tacking on an additional 2%. Capital One has also indicated that it will be adding a fee in the near future, according to Arnold. American Express (AXP) charges a flat 2%.

Here's where it gets complicated: Many foreign merchants, especially in Western Europe, offer consumers the option to convert the local currency on the spot and make the transaction in U.S. dollars. The benefit, ostensibly, is that the consumer avoids the foreign-currency-exchange fee. (And in the instances when the merchant's exchange rate is lower than the bank's, you end up saving some bucks.) Here's the sneaky bit: Some card issuers will impose a foreign transaction fee anyway — even though no conversion has been made. Chase/Bank One, for example, states in one of its term sheets that it charges "3% of the U.S. dollar amount of the transaction, whether originally made in U.S. dollars or converted from a foreign currency."

5. If You Don't Use Our Card, We'll Punish You -- With Americans carrying an average of seven credit cards in their wallets, according to Cardweb.com, it's normal that they use only a few of them while keeping the rest for emergencies. Now, some banks are trying to make money from those customers as well. How? They increase their interest rates, so that when consumers make charges, they pay more in interest. "Most people don't realize it until they start charging," says Robert Manning, author of "Credit Card Nation." "And they don't understand what it was about their payment history that justified the increase. People have seen their interest rates double, not because they were late, but just as a punitive charge for the bank trying to reduce its costs."

Watch out, these guys are tricky. Be on your guard and make sure you know all the details about how your credit card(s) works.

Taken from http://www.freemoneyfinance.com/

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