Take sting out of credit card gotcha | The Honolulu Advertiser

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Take sting out of credit card gotcha | The Honolulu Advertiser | Hawaii's Newspaper

Posted on: Thursday, March 22, 2007

Take sting out of credit card gotcha

By Sandra Block
USA Today

If you want to get a group of people riled up, ask them how they feel about their credit card issuer. But send the children out of the room first, because you're likely to hear language that's inappropriate for tender ears.

Americans use credit cards to pay for everything from groceries to speeding tickets. But they're increasingly besieged by colossal fees and interest-rate increases that seem to hit them without warning or justification.

Now, though, banks are under scrutiny from the Democratic-led Congress, which held hearings on credit card practices earlier this month. Banks also are feeling competitive pressure to become more consumer-friendly. Some unpopular practices that credit card issuers are abandoning include:

Universal default. Ever wonder why your card's interest rate spiked, even though you've always paid on time? The most likely reason is a practice known as universal default. That occurs when card issuers raise rates for those who made a late payment to some other company. Issuers may also raise your rate if your overall debt has increased. Nearly 45 percent of banks used universal default in 2005, according to Consumer Action, an advocacy group.

Credit card issuers defend this practice. They argue that borrowers who are having trouble with other debts are more likely to fall behind on their credit card bills. But many consumers say the practice is grossly unfair.

Earlier this month, Citi said it would no longer raise interest rates for customers who pay their Citi bills on time but make a late payment to another creditor. Other major card issuers are expected to make similar announcements.

Double billing. Banks that impose this policy use a customer's average daily balance over two months to calculate interest. For example, say you have a $1,000 balance and you pay $900 by the due date. During the next billing cycle, your interest would be based on the entire $1,000 instead of on the $100 you owe.

Double billing doesn't affect people who pay off their balances each month, and it doesn't have much effect on borrowers who maintain a revolving balance, says Curtis Arnold of www.CardRatings.com. But those who occasionally carry a balance — for a couple of months after the holiday season, for example — can be burned by the higher finance charges, Arnold says.

While these announcements are encouraging, "A lot of it is window dressing," says Robert McKinley, president of www.CardWeb.com. For example, Citi's move to end universal default wasn't retroactive, he says, so it won't help borrowers who are already paying higher rates.

But that doesn't mean you have to tolerate 30 percent interest rates and hair-trigger late fees. Here's how to keep your credit card costs down:

Complain. If you've been hit with a high fee because your payment was a day late, call your card issuer and ask for a reprieve. If you've been a solid customer, there's a good chance the issuer will waive the fee, says Linda Sherry, director for Consumer Action.

Switch to a more consumer-friendly card. Many small banks and credit unions offer low-interest credit cards "that don't have a lot of these gotchas," McKinley says.

Set up an online account for your credit cards. These programs offer numerous tools you can use to avoid penalty fees, McKinley says.

Here's one strategy to consider: As soon as you receive your bill, transfer enough money from your checking account to cover the minimum. You can always pay the remaining balance by the due date, McKinley says, but even if you don't, at least you won't be hit with a late fee.

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