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Are You Paying Sneaky Interest Charges On Your Credit Cards?
By: Jeanette Joy Fisher
Are you one of the many credit card holders who signed up for a credit account
with an 8.9% interest rate and then later had your interest rate inflated to
27.4%? Have you read the fine print in your latest statement? Do you know that a
little clause in the fine print of the credit card terms and agreements, called
the "Universal Default Clause" may mean that you're paying a higher interest
rate than when you applied for the credit card? What does this sneaky little
clause mean to you?
If your credit score goes down or one of your other credit qualifications
changes, then your interest rate increases, sometimes more than 10 points. This
doesn't mean only new charges you make to this particular credit card account:
the higher rate gets charged to the entire balance. Yes, you get charged more on
items you purchased beforehand, while believing that your interest rate would
remain the same.
Credit grantors periodically review their customers' credit reports. About half
of all credit card companies take advantage of you if you're perceived as a
high-risk borrower. The fine print in your account statement may include the
universal default penalty, which allows your credit card company to increase
your interest rate if they discover these conditions:
1. You have just one late payment on any credit account. They don't care if
you've never made a late payment to that particular company.
2. You go over your credit limit on any account. Even if you unknowingly charge
a small amount over the credit limit (which many credit card issuers let you do
without notice), your interest rate can be raised.
3. Your credit score drops. Just one late payment can hurt your credit score.
Experian reports that people with no late or missed payments in the last year
enjoyed an average credit score of 759; consumers with one or more late payments
in the past year dealt with an average score of 598.
4. You charge up too much on one account or many credit cards. If you charge up
your credit card near the limit, or even charge up some of your credit cards
over the preferred proportional amounts owed, you could pay extra interest. The
amount owed on a credit line compared to the available credit is termed the
proportional amount owed. Owing less than ten percent of the available balance
gives you the best possible rating. On the other hand, owing over $4,500 on an
account with a limit of $5,000 lowers your score considerably, especially if you
have too many credit cards and other loans with high balances compared to
available balances.
5. You open new accounts or your charge activities indicate a high
debt-to-income ratio. Opening new credit lines, especially consumer finance
accounts, lowers your credit score and adds notations like "Too many consumer
accounts" to your credit report. If your credit card issuer sees that you've
made many new charges on existing accounts and believes that you're getting in
over your head, they may raise your interest rate. Even if this is a temporary
situation, like new home owners who make many purchases in a single month, the
companies take advantage of the unsuspecting credit card holder.
If they find any of the above conditions listed on your latest credit report,
your credit card account that started with a low interest rate can jump to
interest rates as high as 29.99%, Check your credit card statements closely;
look to see if your creditor raised your interest rates. If you find that you're
paying more than you agreed to, call your creditor and ask the reason. Once you
determine the cause, you can work on your credit issue. After you've fixed the
problem, call back and ask for a reduction in your interest rate.
Copyright (c) 2005 Jeanette J. Fisher All Rights Reserved.
About the Author:
Jeanette Fisher teaches real estate investing and interior design college
courses. She is the author of "Credit Help! Get the Credit You Need to Buy Real
Estate" and other books. For a free report on building and maintaining a strong
credit score, see http://www.recredithelp.com Credit questions? Ask Jeanette
http://recredithelp.blogspot.com/
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