Beware: Offers to Skip a Payment
If your credit company invites you to skip a monthly payment without a penalty, it is not doing you a favor. You will still owe finance charges on your unpaid balance. And interest could be adding up on any purchases you make after the due date you skipped.
Beware: Teaser Rates
Some cards are advertised with very low introductory interest rates called teasers. The rate is good for a short period of time. If you know you can pay what you owe while the low rate is in effect, it could be a good deal. But if the teaser time runs out and you still owe money, you could end up paying a higher rate than you might have without the special introductory rate. Just one late payment could also cancel the teaser rate.
Beware: Credit Insurance
When you take out a loan for a big purchase, a salesperson may try to sell you credit insurance. Your credit card company may also encourage you to purchase credit insurance. The coverage may be promoted as a way for you to protect yourself if your property is damaged or lost. Other credit insurance offers promises to make loan payments if you are laid off, become disabled or die. It is almost always better to buy regular property, life or disability insurance instead of credit insurance.
Be Alert: 'Credit Repair' Scams
Beware! Before you sign up for fee based credit repair services, beware. Many of the promised services are either illegal or ones you can do for free by yourself. Before you sign up to work with these companies, here are some tidbits to keep in mind:
- A credit repair company must give you a copy of the "Consumer Credit File Rights under State and Federal Law" before you sign a contract.
- The company cannot perform any services until you have signed a written contract and completed a three day waiting period, during which time you can cancel the contract without paying any fees.
- The company cannot charge you until it has completed the promised services, according to the Credit Repair Organizations Act.
- It is illegal to erase timely and accurate negative information contained in your credit history.
- Suggestions that you create a new credit history (also called file segregation) by requesting an Employer Identification Number from the IRS are also illegal.
- You can work to solve your own credit challenges, by requesting a free copy of your credit report, and by working with creditors to dispute incorrect information.
CARD Act Protections for Consumers
The Credit Card Accountability Responsibility & Disclosure (CARD) Act brought about sweeping protections for consumers. Among other things, your credit card company:
- Cannot change rates or fees without sending you a notice 45 days in advance in most cases.
- Must give you the option of rejecting a fee increase, but be aware that the credit card company may close your account if you reject the fee increase and may require a higher monthly payment.
- Cannot charge you a late payment fee of more than $25, regardless of how much you owe- unless one of your last six payments was late or the credit card company can justify a higher fee based on the cost of late payments.
- Cannot charge a late payment fee that is greater than your minimum payment.
- Cannot charge you an inactivity fee for not using your card.
- Cannot charge you more than one fee for a single late payment or any other violation of your cardholder agreement.
- Cannot charge you over-the-limit transaction fees unless you opt in, stating that you want to allow transactions that take you over your credit card limit. If the credit card company allows the transaction without your opt-in, it cannot charge you a fee.
- Can impose only one fee per billing cycle for transactions that take you over your credit limit if you opt in to over-the-limit transactions. You can revoke your opt-in at any time.
- Has to tell you how long it will take to pay off your balance if you make only minimum payments.
- Must mail or deliver your credit card bill at least 21 days before your payment is due.
- Must apply any payments above the minimum required amount to the balance with the highest interest rate, if you have more than one rate.
- Cannot increase your rate for the first 12 months after you open an account unless you have a variable interest rate or an introductory rate; you are more than 60 days late paying your bill; or you are in a workout agreement and don't make payments as arranged.
- Cannot charge higher rates for purchases made before you receive notice of a new rate.
- Cannot use the double-cycle billing method when calculating interest; interest can only be charged on balances within the current billing cycle.
- Cannot increase your Annual Percentage Rate (APR) without explaining why it is doing so. If your credit card company increases your APR, it generally must re-evaluate that rate increase every six months. Under some circumstances, it may have to reduce your rate after the evaluation.
What's more, a credit card company can grant credit cards to consumers under age 21 only if they can show they are able to make payments or have a cosigner for the card. The Federal Reserve has more information about CARD Act protections.