“Credit Card Roulette” - October 11, 2009

Last year as the wings came off the banking sector causing the economy to spiral out of control, credit card companies responded to mounting customer defaults by raising fees, raising interest rates, instituting hidden transaction fees and reducing credit limits with little or no notice. The reaction from consumers was loud and angry and congressional representatives responded by passing pro-consumer legislation under The Credit Card Act of 2009. While tighter restrictions on credit card companies is a good thing, don’t be fooled into thinking that all the credit card mess has been solved. Many of the changes do not take effect until February 2010 and until then some credit card companies continue to exploit their customers, even the ones with good credit. You’ll need to remain vigilant and closely monitor your credit card activity.

Avoid late fees. Many card companies have significantly increased fees for late payment. If you mail in your payment, be sure to mail it early enough to get there on time. On two recent occasions, I mailed payments that I thought allowed ample time to arrive by the deadline only to find out they ‘posted’ my payment one day late. The result…a $39 late payment fee. One solution is to go on line on the due date to be certain your payment was received. If not, you can pay immediately, on-line to avoid the penalty.
Keep your cards active. Because of the financial crunch, many card companies are terminating cards of customers who are not using their credit card. The reason? The company has extended you credit that you are not using and because of the financial crisis, they are under pressure to reduce the amount of credit they have extended. Since they are not making any money on you, terminating your credit becomes their best solution. Your best move is to use your credit cards but pay off your balance every month, on time. Think of it as an extension of your checking account rather than a source for borrowing money you don’t have.
Shred those ‘convenience’ checks. These are the blank checks that your credit card sends you and encourages you to use to pay off bills or treat yourself to a trip to the mall. First, the checks are nothing more than an advance against your credit card and carry very high transaction fees and often much higher interest rates. There is no ‘grace period’, meaning interest is calculated from the moment you use the check and you lose protections that go with credit card purchases granted under the Fair Credit Billing Act such as refunds for defective merchandise. You also don’t receive bonus or reward points such as free airline tickets. Shred them so they don’t fall into dishonest hands, or even better, contact your credit card company and tell them not to send them in the future.

Credit cards continue to be a useful tool in your money toolbox. They help establish and build your credit; are a convenient method of paying for goods and services without having to carry large amounts of cash; and can provide reward points that you can use for free purchases such as airline tickets.