The 5 Worst Credit Card Practices

This is a guest post from Patrick of Cash Money Life. If you want more information, check out his “About” page. If you like what you see here, please consider subscribing to his RSS feed.

Credit card companies are always coming up with new and innovative ways to extract fees from their customers. It’s reached an unfortunate point where credit card companies make most of their money from the mistakes and misfortunes of their customers. These huge profits come in the form of fees, late charges, and other penalties.

What follows is a list of the 5 worst credit card practices…

1. Super High Interest Rates: There is no federal law to limit interest rate charges; those laws are covered at the state level. In fact, most credit card companies incorporate in Delaware or states that have no interest rate ceilings, which allows them to charge such high rates!

2. Double-Cycle Billing: Some credit card companies have found a way to charge more interest to their customers and even make them pay interest for debt they have already paid off! Double-cycle billing, also called two-cycle billing, charges interest for the average daily balance for two cycles: the current cycle, and the previous cycle. With this practice, credit card companies can charge their customers for debt they have already paid off.

3. Universal Default Interest Rate Ladder: The Universal Default Interest Rate Ladder is something the credit card companies can use to raise your interest rates to a ‘default’ level when there is the perception that lending money to you takes on a higher amount of risk for them. Credit card companies regularly screen their current customers’ credit reports for any of several universal default triggers. These may include exceeding your credit limit on another card, a single late payment on another credit card, a decline in your credit score, having too much debt, adding additional lines of credit such as a home mortgage or auto loan, or even applying for more credit, whether it is approved or not! The universal default rate can cause your interest rates and payments to skyrocket! The worst part is, you won’t even know it was applied until you get your next bill.

4. Pre-Approval Does Not Mean Pre-Approval!: Credit card companies buy lists of credit scores and other information to solicit new customers. I’m sure most people reading this have received numerous ‘pre-approved’ credit offers with teaser starting interest rates and low fixed rates after that. Read the fine print. That ‘pre-approved’ offer is actually, “…subject to meeting qualifications. Those who fail to qualify will be offered one of our other lines of credit.” Usually at more than 20%. Unfortunately, you won’t know which offer you qualified for until after you receive your card. This is risk based pricing at its finest. Here is how to opt out of pre-screened credit card offers.

5. Cardholder Agreements That Require a Law Degree to Understand: Seriously, have you ever tried to read those things? I consider myself an intelligent person, and I just give up on reading them and make sure I pay my bill on time! Actually, that is what the credit card companies count on, only they don’t want you to pay on time. In the cardholder agreement, you will find information pertaining to Worst Credit Card Practices 1-4 of this list, plus the Honorable Mention – Late Fees. Be sure to read and understand the cardholder agreement before applying for the card!

Honorable Mention – Late Fees: According to Consumer Action, a California consumer group, late fees averaged $28 per month in 2006. The highest was $39. That is a lot of money to add to a credit card bill – especially because the person receiving it likely can’t afford it in the first place.

The best way to handle these unfavorable credit card practices is to read and understand the fine print in the cardholder agreement. If there is something in the agreement you don’t like, don’t apply for the card.

If you already have the card, you have to be diligent to make sure you don’t pay extra fees or penalties. You can also try contacting your credit card company to try and have some fees reduced. This may work once or twice, but I wouldn’t rely on this as a long term solution.

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8 Responses to “The 5 Worst Credit Card Practices”

  1. Anonymous

    In a world full of financial tools no school is giving any financial education. Most individuals when living high-school they fall into the debt trap. Credit makes sense for businesses but for consumers in most cases is against their financial interest to resort to it.

  2. Anonymous

    Don’t forget credit card issuers offering you high interest balance transfers after you call in to report fraud or make a general account query.

    It’s amazing that you’ll ask about your account details, and then seconds later they’ll ask if you need to transfer anything to a “low rate” 5.99% APR credit card, regardless of what you’re calling about.

  3. Anonymous

    I worked for a credit card company (not mentioning for privacy reasons) and I beleive they were evil. Unfortunately being a Call Center rep, we had to take all the abuse, frustration, and escalation from customers who had his/her APR increased becuase of a Change in Terms. An example of this was I saw an account that had a $30,000 line of credit. This customer had a good APR of 3.99F. His payment was processed late, he got a late fee, and a month or two later they jacked his APR right up to 31%. Upon working in this job, when there were APR/Retention offers available for customers who were sitting at 31%, we were not allowed to offer the lowest. I feel a lot more publicity needs to be put on the internet, and exposed for how truly wrong this is. I blame the credit card companies for the ongoing issue with debt.

  4. Anonymous

    My personal favorite is the “convenience” fee that they add when paying your bill, without talking to a real person, over the phone. I don’t find that $29 dollars spent convenient in the least.

    Jimbo the Great

  5. Anonymous

    Interesting. One thing I wonder about is if we ourselves were in money-lending business which conditions we’d set.

    I’d imagine high interest and universal default would be among our conditions: 1) if you are lending to the individuals you don’t know and who are obviously not very good at money management (because they carry the balance in the first place) you want the profit be high enough to justify the risk of not getting your money back. 2) you’d like to know about the practices of people you are lending money to and you would want to adjust your interest accordingly – again to make sure your profits worth the risks.

    So I kind of understand these two conditions. It is easy to criticize, and yes, some of the practices are indeed bad and deceptive, but think what you’d do if your own money were on the line.

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