By Gerri Detweiler
Nearly 20 years ago I worked for a small consumer advocacy
organization in Washington, DC. Each week we received sacks full of mail from
consumers across the country requesting our list of credit cards with low
interest rates and no annual fees. If you wanted a low interest rate on a credit
card back then, you often had to apply to a bank in Arkansas where interest
rates were capped by state law.
Those were the good old days.
Now, interest rates range from zero percent to a high 39
percent. It's tougher to find (and keep) a good credit card than ever before.
That's because there are many new traps that can snag unsuspecting consumers.
At the top of the list is the "universal default clause" which
allows issuers to monitor you credit report and raise your rate if you are late
on any bill that appears on your credit report. One major issuer, for example,
will hike a 0 percent rate to 24.99 percent if you slip up!
In fact, true "fixed rates" are rare. Many consumers don't
realize that a "fixed" credit card rate isn't the same as, say, a fixed-rate
mortgage. In most states, card issuers can raise the interest rate on a
fixed-rate credit card with just fifteen days' written notice. The new rate can
typically apply to existing balances as well as new purchases.
Fees are also on the rise. Take late fees, for example, twenty
years ago a late fee on a credit card was still fairly unusual, and typically
wasn't charged unless you were 15 days late with a payment. Now you often must
get your payment to the issuer by a certain hour in the morning or you'll be
charged a late fee of as much as $39. Go over the limit and you'll not only pay
more interest, but a steep over limit fee as well.
Foreign travelers are often charged a "currency conversion
charge" of 1 - 2 percent of the amount of their purchase. As the result of a
class action lawsuit, Visa and MasterCard were ordered to provide refunds of
those fees in certain circumstances. The problem wasn't that the fees were
illegal, but it was determined they weren't properly disclosed. The case is
Here are some findings from the nonprofit Consumer Action's
annual survey of credit cards (http://www.consumer-action.org/):
-- The vast majority of surveyed cards have significantly higher
penalty rates that are triggered by one or two late payments in a period of six
months to a year.
-- One-fifth of surveyed issuers have shifted to tiered late
payments, which Consumer Action interprets as a deceptive way of charging
higher-than-average late fees.
-- The number of cards with $35 late fees has more than doubled
from last year.
-- More than half the cards surveyed require cardholders to pay
only 2 percent of the monthly balance each month - a disturbing trend that
dramatically increases the overall interest paid by cardholders.
-- More than one-third of surveyed institutions will not provide
a firm annual percentage rate (APR) until they have screened the applicant's
credit history. Instead, they give only a meaningless range of rates before
screening, which makes comparison shopping difficult if not impossible.
Don't get me wrong - I am not saying that credit card companies
should not make money. In fact, easy access to credit has helped fuel our
economy, especially when the going gets rough.
But many consumers now are literally trapped by high-cost debt
with few options. I've spoken to consumers who feel they have no choice but to
file for bankruptcy because their credit card companies all raised their
interest rates to between twenty and thirty percent, and they simply cannot
manage to pay the balances down.
With all the landmines out there for credit card users today,
the best strategy is still to pay down debt as quickly as possible and limit
yourself to a couple of cards to avoid problems.
Sometimes, of course, that's easier said than done!
Gerri Detweiler is considered one of the country's top credit experts. She has
been interviewed for thousands of radio, television and print newstories
including USA Today, The Wall Street Journal, The New York Times, Dateline NBC
and many others. She has testified before Congress several times and worked on
reform of the national credit reporting laws. Email - firstname.lastname@example.org