If a credit card offer sounds too good to be true, it probably is. Over the years, credit card companies have gone from charging reasonable amounts of money for their services to charging unreasonably low amounts, on the surface. Instead, many credit card companies now make their money on hidden fees and interest rates.
Whenever you sign up for a new credit card, you need to read the entire document to make sure you understand what you’re signing up for. It can be tedious, but it can end up saving you a lot of money.
Here are a few of the most common hidden fees and interest rate changes to look out for.
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Balance Transfer Fees
Moving high-interest debt to a lender with 0% introductory APR can save a lot of money if you can pay it off within the introductory offer period. However, balance transfers are not always free. Many credit card companies will charge a 3% fee to transfer your balance. That’s true even of companies that advertise themselves as “0% for the first 6 months!”
Make sure you ask about this fee before transferring any balance to a new card. Also, check for other details such as how much you can transfer, how long is the introductory 0% APR valid, etc., before you make the transfer.
Weekend or Holiday Fees
If you have a bill due over the holidays, it can be very easy to miss. Many credit card companies used to take advantage of this by deliberately scheduling due dates on holidays or weekends.
This is illegal now. That said, it can still happen – so try and get your bills in before any holidays or weekends.
Inactivity Fees
This is another type of hidden fees commonly used by lenders. Banks don’t just want to make money off you for using your card. They’ll also charge you for not using your card.
If your card has an inactivity fee charge on it, that means that if you don’t use your card for a specified period of time, they can charge you for that. In fact, they might keep charging you just for the privilege of having a card you don’t use. In such cases, it is better to cancel the card that you don’t use rather than just keeping it idle.
No Warning Rate Increases
Banks can increase the interest rate of their credit cards across the board without warning. Typically, there is a 45-day notice period for interest rate increases. You can also choose to opt out of this increase by paying off your balance at the current rate.
However, there are some cases where banks can raise the rates without any warning. If you’ve become delinquent (at least 60 days late payment), banks have no requirement to warn you off the raise. Similarly, credit cards with variable rates are subject to rate increases based on the market rate. Even here, you don’t have to be notified.
If they increase your rate specifically, you’ll get a warning. If the bank itself increases its rates, you might not hear about it at all.
This happened to a lot of consumers in the 2008 credit crisis.
Late Fees
Many banks have clauses that allow them to skyrocket your interest rate if you’re late by even one day on your credit card payments.
You might have a low 6% interest rate card. However, miss one payment and suddenly you’re staring at a 20% interest rate.
This is one of the most mischievous of rates, because it preys on the consumer’s belief that they don’t miss payments. Statistically however, people do make mistakes. This system is designed to take advantage of that.
Overseas Fees
Many banks charge fees for using ATMs or making transactions overseas. Though this fee is usually not huge, it can really add up. Visa and Mastercard both have 1% fee regardless of the type of the card. This applies to all your foreign transactions. It is quite rare to find a card that has no annual fee or foreign transaction fee. If you can find one such card in the market, it really can help you save a lot of money.
To Sum Up
Credit card companies are coming up with more and more hidden fees every year to tack on. The bottom line is, make sure you read the credit card agreement before you sign anything. Also, keep track of all the notifications from your credit card companies to not miss out on any new fees applicable to your card.
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