Beware Sneaky Credit Card Repricing
The numbers are shocking: 50% of American card holders don’t realize they’re paying a penalty interest rate on their balance. If they do know about the inflated rate, they don’t understand why it has been applied to their balance. This is only one of the discouraging statistics turned out by the Center for Responsible Lending. Their study shows that, when it comes to credit cards, what you don’t know can hurt you.
Changes to Interest Rates
The way that credit card issuers handle interest rate change notifications has come under criticism. Namely, they don’t ensure that the customer knows how much interest they’re paying or why.
A hike in interest could be the result of a late or missed payment, or could come about simply because the company increased their interest rates in general. Be aware that card companies reserve the right to change your interest rate with as little as 14 days’ written notice.
Different Interest Rates
Only 3% of American card holders have a thorough grasp of the difference between low introductory interest rates and the much-higher interest rates applied to charges and cash advances. These card holders don’t realize that their payments are first applied to purchases with the lowest interest rates. Since cash advances come with higher interest, they are some of the last items to get paid off – frequently lingering on the card for years while the company reaps the interest.
What Can You Do?
Soon the Federal Reserve will announce new legislature that will make it illegal for credit card companies to overcharge their customers. But consumers should take some steps to protect themselves, now and in the future.
The most basic advice from experts is to read your credit card statements carefully. You might be surprised by the charges and interest rates you find there. If you find that your interest has been recalculated, try transferring the balance to a credit card with better terms, or simply avoid making further purchases while you pay off the offending balance.
Know the different interest rates and how they’re applied. For example, you could have a credit card that starts with a 6 month period of 0% interest. After six months, the interest rate could go up to 16%. Cash advances could carry a rate of 22%, and late payments might stick you with six months of 30% penalty interest.
The Federal Reserve, spurred by consumer advocate groups, is looking out for your best interests. But you need to look out for yourself as well. Know your terms and conditions, know your interest rates, and know that you can always take your business elsewhere.
