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12 Credit Card Secrets the Banks Don't Want You to Know

Here are twelve credit card secrets which many banks would prefer you did not know...

1. Interest Backdating

Most credit card issuers charge interest from the day a charge is posted to your account if you don't pay in full monthly. But some charge interest from the date of purchase, days before they have even paid the store on your behalf!

REMEDY: Find another card issuer or always pay your bill in full before the due date.

2. Two-cycle Billing

Credit card issuers which use this method of calculating interest, charge two months worth of interest for the first month you failed to pay off your total balance in full. This arises only when you switch from paying in full to carrying a balance from month to month.

REMEDY: Switch issuers or always pay your balance in full.

3. The Right to Setoff

If you have money on deposit at a bank and also have your credit card there, you may have signed an agreement when you opened the deposit account which permits the bank to take those funds if you become delinquent on your credit card.

REMEDY: Bank at separate institutions, or avoid delinquencies.

4. Fees Are Negotiable

You may be paying an annual fee on your credit card of up to $50 a year or more. You may also be subject to finance charges of over 18%.

REMEDY: If you are a good customer, the bank may be willing to drop the annual fee and reduce the interest rate. You only have to ask! Otherwise, you can switch issuers to a lower priced card.

5. Interest Rate Hikes Are Retroactive

If you sign up for a credit card with a low "teaser" rate, such as 7.9%, when the low rate period expires, your existing balance will probably be subject to the regular and substantially higher interest rate.

REMEDY: Pay in full before the rate increase, or close the account.

6. Shortened Due Dates

Most credit card issuers offer a 25 day grace period in which to pay for new purchases without incurring finance charges. Some banks have shortened the grace period to 20 days, but only for customers who pay in full monthly.

REMEDY: Ask to go back to 25 days.

7. Eliminating Grace Periods

That fabulous offer you received in the mail for a gold card with a $10,000 credit limit and lots of features may not be so great. The most common condition attached is that the card probably has no grace period. You are charged interest on everything from the day you buy it, even if you pay on time.

REMEDY: Throw the offer out!

8. Disappearing Benefits

Many banks enticed you to sign up with extra benefits such as a lifetime warranty, a 5% discount on all travel, or protection if an item purchased is lost. Now, some banks have cut back on these extras without the fanfare that launched them.

REMEDY: Read all notices regarding changes to your account and switch credit cards if need be.

9. Double Fees On Cash Advances

Most credit cards impose both finance charges AND a transaction fee on cash advances. Interest starts from the day of the advance and the transaction fee can be up to 2.5% of the amount taken. Beware of cards advertising "no finance charges." Transaction fees may still apply.

REMEDY: Limit cash advances.

10. Fewer Rights On Debit Cards

Some cards with Visa and MasterCard symbols are not credit cards and will have payments deducted directly from your checking account. These are debit cards.

Under federal law, you do not have the right to "charge back" problem purchases to a debit card as you do with a conventional credit card. Also, if a debit card is lost or stolen, you can have unlimited liability for losses if you do not report the problem within 60 days, which is in sharp contrast to the $50 maximum liability on credit cards. (Exception: the $50 limit applies to debit cards as well as to credit cards in Massachusetts.)

REMEDY: Know your card. Is it a credit card or a debit card? They can look alike.

11. Misleading Monthly Minimums

You may think it is beneficial to have a credit card where you only need to pay 2%-3% of your balance monthly. It is just the opposite. The bank stands to make far more money from finance charges the longer you carry out payments. And YOU foot the bill.

REMEDY: Pay all you can monthly.

12. Interest from Day One

When you carry a balance from month to month, there is no grace period on new purchases on most cards. The 20-25 day grace period where no finance charges accrue, does not apply when you don't pay in full each month.

REMEDY: Find credit cards that exclude new purchases when calculating interest.

Information provided by courtesy of the Commonwealth of Massachusetts Consumer Affairs and Business Regulation.