Purchasing methods are constantly evolving and
becoming increasingly convenient over time. Consumers went from
having to walk a herd of cattle to the market for trade, to lugging
around a wallet of cash, to now holding all their wealth in a sliver
of plastic. Credit cards have made the world of transactions simpler
and easier to navigate for consumers around the world. Large
purchases can be made without the cash up front. Many card companies
offer various reward, cash back, or points promotions for use.
Online shopping has become a breeze.
Credit cards have the ability to make any old
consumer a powerful individual investor. But, with great power comes
great responsibility. The number of people struggling with credit
card debt in America is astronomical. The invincible feeling that
people get from swiping that card can often leave them devastated.
That devastation is ubiquitous in their lives, affecting their credit
scores, their ability to access loans, and their financial history in
general. Credit cards are necessary and advantageous tools for most
people, and, if used properly, can be a huge asset to your spending
habits, but it’s important to know the facts about your card.
That shiny piece of plastic poking out of your
wallet can be death trap, if you don’t know how to navigate the
terrain. There are a few things that you need to be aware of before
you start swiping through the checkout lines.
1) Interest rates
are limitless- When you sign up for a credit card, you agree to a
certain interest rate, hopefully a low one. The scary fact is that
in most cases that rate can be raised to whatever the credit card
company likes. There oftentimes are state laws in place limiting how
high those rates can be set, but many of the largest, and most
popular, credit cards are issued from federally chartered banks that
don’t have to follow those state laws. The CARD Act (the Credit
Card Accountability, Responsibility and Disclosure Act) guarantees
that rate for the first year of the contract, but after that, the
rate is free game for any increase they like. On the upside, the
card company must notify you 45 days in advance of the increase, and
the new rate only applies to charges after that change date, and not
your current balance.
2) Only
domestically reliable- Anyone taking a trip out of the country might
think that carrying a credit card, as opposed to a fanny pack full of
Euros, may seem like a great idea, but many card users could soon
find themselves searching for the German translation of the word
“denied.” The magnetic strip found in most credit cards in the
U.S. isn’t often used overseas. EMV cards, on the other hand, are
much more functional. Those EMV cards, which are named after their
developers, Europay, Mastercard and Visa, contain a microchip
attached to an account instead. You can ask your provider for an EMV
version of your card for your trip that should serve you much better.
3) Fixed rates
aren’t always fixed- Fixed rates always sound good in theory. You
know what you’re signing up for is something you can depend on
continuing. Well, the fixed rate that is here today could easily be
gone tomorrow. Credit card companies are able to change your
interest rate and the calculations that go into determining that
rate. Your fixed rate could easily become variable if the credit
companies so desire. If the rate does becomes variable, the company
must again give you 45 days notice before an increase, but if it
becomes variable, and the rate stays the same or goes down, they
don’t always have to notify you. And, if they want to decrease
your credit limit or close your card entirely they don’t have to
tell you until after the deed is done. If this does happen, the
company is required to send you a copy of the credit score that
caused the change.
4) Tardiness is
penalized- This is one of the most obvious but most troublesome
aspects of using credit cards. The due date on your statement is the
date that your payment must be received, and if you pass this date,
you could be slammed with a fee. But there are a few rules that
protect consumers if they find themselves a little behind schedule.
Your issuing company cannot report your delinquency to the credit
bureaus until your bill is late by an entire month. This means,
unless you are 30 days late, your credit score won’t be hindered.
Also, your rate can’t be raised unless you are an entire 60 days
past due. So being a few days late will cost you some money, but not
your record or your rate.
Credit cards are the best thing since sliced
bread for many consumers, but if you don’t know your way around the
rules, you could easily find yourself swiping your life away, almost
literally. Manage your spending habits, read the fine print, and
swipe within your means and you should find yourself ruling the
plastic world in no time.
This
material was prepared for Wealth Design Group, LLC by Financial
Social Media.
