Credit card commercials and other marketing efforts are full of happy people getting more out of life — and that’s fine. But there’s also a different and darker side to signing up for a credit card: one that credit card companies don’t like publicizing on TV and across posters and banners, since it’s certainly not to their advantage.
However, Eyes On The Dollar is all about educating and informing consumers so they can make safe, smart financial decisions rather than heading down the wrong road that leads to debt, and in some cases, bankruptcy.
As such, here are four eye-opening things that credit card companies really don’t want you to know — but that you certainly need to understand:
- Your interest rate can — and almost certainly will — change without your approval.
Credit card companies don’t politely ask you if it’s OK that your interest rate will rise. Instead, they unilaterally increase it, and send you a letter letting you know (which they wouldn’t do if it wasn’t legally required).
- A single late payment can hike your APR across all credit cards.
Being late with a single payment can hike your APR — and not just on the credit card in question. Since the delinquency will be reported to the credit bureaus, the interest rate can jump on all of your credit cards. The good news, however, is that according to the CARD Act credit card companies must reconsider a punitive interest rate hike after six months.
- The “minimum payment” is a trap.
Credit card companies like — make that love — cardholders who regularly pay the minimum amount. These folks (called “revolvers” in the industry) are proverbial cash cows. Don’t fall into this trap! Occasionally paying the minimum amount is fine when necessary. But this should be the exception and not the norm. Remember: consumer credit card interest isn’t tax deductible. This means every dollar you pay in interest eats up more than a dollar of your income. For example, if you’re in a 25 percent tax bracket, then you must effectively earn $1.25 for ever $1 of interest that you pay.
- Don’t get sucked in by rewards, rebates, and other incentives.
Sure, some credit card rewards programs are good (but frankly, many of them aren’t). And if you plan your spending wisely and strategically, at the end of the year you could very well come out a few hundred dollars ahead — whether that’s the result of reduced travel fees, cash-back rewards, and so on. Yet keep in mind that rewards programs aren’t just designed to cultivate your loyalty for one credit card vs. another: they’re also designed to get you to spend more than you ought to, because your focus is on earning points and rewards instead of spending wisely.
The Bottom Line
Credit card companies aren’t the enemy. But they aren’t necessarily your BFF, either. You need to take control of your own financial health. That means keeping the above in mind, and ensuring that every dollar you spend on your credit cards is deliberate, intentional, and desirable — not because you’ve been manipulated, misinformed, or misled!