Become a Credit Card Shark
Don't be a fool when it comes to managing your money
You may think of your credit card as an old pal who's stuck by you, making your life richer and your bank account poorer. But this past year, that friend may have stabbed you in the back of the wallet.
The problem is that credit cards aren't as nice as they used to be. The interest rate on balances is on an upward swing, typically tied to the Fed's interest rate action. There have been 13 hikes since June '04, and analysts predict that rates will keep inching up in '06. Then, too, many issuers are cooking up new hidden fees and levying stiffer penalties to boost their bottom line.
What all this means is that '06 is the year to learn how to live in harmony with your existing card(s)--or else go shopping for a new plastic pal.
1. See how low your rate can go. The standard variable rate card has an average 13.4 percent annual percentage rate, or APR, but some go as low as 10 percent. Shop for a lower card rate (box, Page 74). If you find one, then you might tell your card company you'll switch unless it can do better. According to a study by the U.S. Public Interest Research Group, asking for a lower rate works 56 percent of the time. Oh, and don't assume that a fixed-rate card is fixed forever. Issuers can change their rates with as little as 15 days' notice.
2. Don't be late with any bill. Nearly half of all credit card issuers now impose what they call a "universal default clause" rate hike. If you are late paying another bill--car payment, student loan, mortgage--your credit card issuer might spot the screw-up on a routine check of your credit report and then up your interest rate--sometimes to as high as 35 percent. Going over your credit limit, bouncing a payment check, or just plain having too much debt can also trigger a rate hike. And they don't even have to tell you. The law gives them that very annoying right. So in addition to checking the charges on each statement, you need to check your rate, too. Most banks will reduce the higher rate if your credit history improves over six months--and you ask them to review your case.
3. Don't let the grace period fool you. No, it's not your imagination: The interval between the billing date and the due date is shrinking, from 30 days to 20 or less. There may even be a due time--like noon on January 13. So the minute that envelope comes into your home, open it. "You can get hit by a penalty even if you are late by an hour with a payment," says credit expert Gerri Detweiler. And how come the due date is always some strange day, like the 13th or the 22nd? Perhaps it's because credit card companies know that you're more likely to miss an offbeat deadline. But you can call your issuer and ask to have the due date changed to a time of the month that fits into your bill-paying routine. Meanwhile, a no-late-fee card may seem like a salvation--Citibank's new Simplicity card, for instance, promises no penalties for tardiness if you buy something each month. But such cards often jack up the interest rate if you are indeed late, and any late payment will be noted on your credit report.
4. Go for zero sooner rather than later. Zero-percent interest rate offers and balance transfer offers are tapering off. As short-term interest rates head higher, it gets more expensive for credit card companies to make such offers. If they do, the time period may be tighter--six interest-free months instead of a year, for example. If your aim is to transfer an existing balance, then stop reading this story and do it now.
5. Carefully consider reward offers. Because zero-percent balance transfers are on the wane, rewards are on the rise as a hook for customers. But airline reward cards most likely have an annual fee of $45 to $90 (newbies who ask can often get the first-year fee waived). Make sure the rewards won't vanish if you don't claim them in a year or two. Five years is a reasonable expiration policy; no expiration at all is even better. You might also check the fine print for the words up to, restricting rewards. That's a common clause. Keep in mind that with a cash reward card, you have to ask for the check. And look into the policy for late payments. American Express, for example, takes away that month's points if you're late and charges $29 to reinstate them.
6. Get rid of your balance. The best way to avoid problems is to pay down your cards, starting with the one with the highest interest rate. Next to "I love you," the three sweetest words in the English language are "No balance due."
PLASTIC PALS
These consumer-friendly websites are chock full of helpful info.
bankrate.com Check out credit card basics, compare rates.
cardratings.com Reviews of more than 1,000 credit card offers.
cardtrak.com Its CardLocator will find plastic that suits your needs.
This story appears in the December 26, 2005 print edition of U.S. News & World Report.