1: Fine Print Importance
There is an upside and a downside to everything. Everything that has benefits, probably also has setbacks, and the same thing goes with your credit cards. For instance, you might have a card that offers a low balance transfer rate, but their cash advance interest might be significantly higher.
Most cards operate in this fashion, with different interest rates for each of the balances that your card carries. While your monthly statement reflects the total credit you have used, it breaks down into the different ways that you can use your card. By reading the fine print, you will know how to best use your card.
Just because you might have a fixed rate doesn't mean that your credit card company must offer that rate at all times. In fact, they can change it whenever they see fit, especially if you violate your contract with even a single late payment. There is a grace period for this change, which is fair, but you need to know that your fixed rate is never permanent.
Similarly, you need to make sure that the rate you are paying is not introductory. If it is, then it will probably only last 6-12 months, at which time it will jump to a higher rate. Sometimes this jump is incredibly significant and seemingly unreasonable. However, you should have known this beforehand because you read the terms and conditions of your account before signing your contract.
2: Universal Default
This is perhaps the most significant aspect to credit that goes unnoticed to general consumers. In case you didn't know, credit card companies can monitor any and all of your accounts, even those that are not related to their services. If they do not approve of your payment behavior with your other accounts, even if you had problems years before opening your credit line, they can change your rates. Basically, you can have a perfect payment history with your credit card, but have missed a couple of payments on your mortgage, and your consumer credit lender will determine that you are at risk for what is called "universal default."
While this seems an unfair practice, there is a level of legality to it that you cannot deny. Perhaps it is not fair to judge you based on something that was unpreventable a year ago, but it is grounds for determining that you could have issues in the future. To avoid this, always communicate with your lenders, no matter if it is the utility company, your mortgage or auto loan bank, or your cell phone company. Do not let any detrimental mark appear on your credit history.
3: Credit Card Reform
Last year, the Office of Thrift Supervision, the National Credit Union Administration, and the Federal Reserve Bank met to discuss new changes to credit card laws. This resulted in several things that should help consumers:
- First Change
First of all, the new measures established a grace period of 45 days for nearly every kind of change that a credit card company can make to your account. Excepting only variable rates, credit card companies must give you at least 45 days of notice before they can institute any changes to your rate, even if you knowingly missed a payment or made a mistake. This also applies to universal default. While they couldn't completely abolish the idea of universal default, this grace period does give you some time to adjust and, if possible, find another lender.
- Second Change
Secondly, since every credit card carries multiple balances, the new law forces credit card companies to pay down your high-interest balances first. In the past, lenders would apply your minimum payments to the lowest interest-bearing balance first, so that your high-interest balances remain open as long as possible. This change can help you to pay down your cards quicker.
- Third Change
Finally, companies must now disclose to you how much your payment schedule will cost you in the end. They must inform you of how much interest you will end up paying over the life of your account if you only make minimum payments.