Five Things You
Should Know About Your Credit Cards
By Jeanette Joy Fisher
A vast majority of Americans
have at least one credit card, and they can be
very handy. For instance, have you ever tried to
rent a car (or even a movie) without a driver's
license and a credit card as ID? However, if you
probe a little deeper, you'll generally find that
most folks have no idea how much trouble their
credit cards could ultimately cause them. Here are
a few things you should know about your credit
cards.
First, if you're late in paying one of your credit
card bills even once (or if you're late with a
house payment, rent, or some other bill), all your
other card companies have the right to raise your
interest rate. They can do that because of what's
known as the Universal Default Clause in the
contract you signed when you first applied for a
card. It's become a standard clause for nearly all
credit cards, and it can be devastating if you
find yourself unable to keep up with even one of
your obligations.
Second, there's no limit to how high your interest
rate could ultimately go. There's generally a
section of your application that tells you what
exorbitant rate you'll be charged if you get
behind on your card, but that rate can be exceeded
at any time by the issuing company if they feel
it's justified. That's one reason you'll see that
the majority of your credit cards are listed on
the back as being based in South Dakota, Delaware,
or Utah. Those are three states that either have
no usury laws or have weak laws that allow for
high interest rates to be charged. If you get into
trouble with a card, this clause can hurt you a
great deal!
Third, your credit score (also known as your FICO
score) can affect the interest rate you pay on
your credit cards. Many people don't know that the
rates on their cards are negotiable, but you can
often call and get a lower rate (assuming your
FICO score is good). All you have to do is ask. On
the other hand, having your FICO score go down may
increase your interest rate, so it's important to
stay current with your debt obligations.
Fourth, there's no limit as to how much you can be
charged for late fees and penalties when you don't
pay on time. Those kinds of fees have more than
tripled over the past decade, and they'll probably
continue to go up, since they're one of the
biggest moneymakers for credit card companies.
Finally, don't get complacent and pay only the
minimum amount each month on your card. If you do,
it will take years to pay off your bill, so no
matter how hard you may have shopped for a
purchase, you'll end up paying many times more for
it over that time.
Credit cards can be wonderful things, but you need
to stay in control of how and when you use them,
just like everything else in your financial life.
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Copyright © 2006 Jeanette J. Fisher
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