Credit Card Traps That You Need To Watch Out For
New credit card act called CARD (Credit card Accountability, Responsibility and Disclosure) Act had been approved and signed by President Obama in year 2009. The purpose of this credit card act is to protect consumers by avoiding them to swiping the card worry-free. However, as a consumer, you still need to watch some potential credit card traps to may badly hurt you in term of new fees and high interest rates. Moreover, the new act tries to reduce the usage of credit cards; therefore, there will be less generous reward and fewer promotions that you can get when you want to apply for a new credit card.
Here's what you need to know and watch out for when using a credit card:
1. Elimination of grace periods
Most people don't aware the different between the credit card payment due date and the grace period. When we talk about payment due date, it is the date you need to make payment in order to avoid late payment fee. Whereas, the grace period is the time during which you will not be charged for the interest. The new credit card act requires the banks to allow at least 21 days for consumers to pay their bill. However, a grace period is not a compulsory term under the new act. The banks may get rid of this benefit and you need to start paying the interest once you make a purchase with your credit card. In other means, you will pay more interest on credit card usage compares to old day.
2. New kind of fees
As the new act prohibits the over-limit fees, which will cut down banks' profit significantly. In order to continue their business and mark up the lost of revenue, banks may introduce new kind of fees. Such fees may include fees for rewards programs, and you may need to pay a service charge in order to review your balance.
In the effort of promoting credit cards and due to market competition, banks have eliminated annually fees for most of their cards. The annual fees may be re-activated to cover some of their revenue losses in over-limit fees.
In order to avoid and protect yourself against unpleasant surprises, you should always examine your credit card statements to see if there are new fees being introduced for your cards. You may also want to reduce the number of credit cards and limit the cards to one or two for convenient usage.
3. Higher interest rates
Prior to the new credit card act, banks can charge their card holders with higher interest rate if their credit rating decrease or they make late payments. Once the new act being in force, the credit card companies do not have the power to hike the rate due to any reason. This is to protect the consumers from the need to pay higher interest rate when they have financial hardship to repay their credit card balances and avoid their debt to snowball faster with higher interest rate. In other means, the risk has been transferred to the issuers. They have no choice, but introduce the credit card with higher interest rates across the board. Therefore, you will start to see most credit card rates will go back to the level of 80s when rates are somewhere between 19% to 20% range for most consumers.
Summary
The new credit card act is approved with the purpose of protecting the consumers. However, it may create more credit card traps that you need to watch out for.
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