10 things credit card issuers will not say

1. "We're just waiting for you to screw up."

Many things can bump your credit card interest rate into the red zone, but nothing faster than what's called universal default. You can make all your credit card payments religiously and for a long time, but fall behind on your electric bill and, suddenly, you're a deadbeat -- and will be charged accordingly. Rates can change on short notice, from low and reasonable to up to 35%.

Card companies say what they're doing is managing risk. Consumer groups disagree, because many people in universal default aren't deadbeats by any reasonable definition. Say, for example, you're disputing a charge on a medical bill or waiting for an insurance snafu to be resolved. If a billing clerk kicks it to collections, you're in universal default. Or suppose your credit score drops -- a common event that may be entirely unrelated to your bill-paying behavior. That's also likely to push your interest rate higher.

The best way to avoid the problem is the most obvious: Pay your bills on time. Bankrate.com, a personal-finance Web site, further advises that if you have a disputed bill, resolve it before it reaches collection status.

2."When it comes to identity theft, we're part of the problem."

Identity theft victim Tony Sciulli of Santa Barbara, Calif., says it started with a forged credit application -- a $3,000 balance was mysteriously transferred to a new card in his name, followed by a ready-made check billed to one of his other cards. What can you do to avoid this sort of low-tech thievery? Buy a shredder, and minimize the credit applications coming to your house by registering at OptOutPrescreen.com.

But paper solicitations are only the tip of the iceberg. As Internet security expert and author Bruce Schneier warns, "Data about you is not under your control." He points to examples such as a May 2005 case involving Bank of America and Wachovia, in which a man posing as a collection agent paid bank employees for customer data in New Jersey. The banks notified customers their data may have been compromised and offered to help watch their accounts for suspicious activity. (The man, Orazio Lembo, pleaded guilty in March 2007 and was sentenced to five years in prison and fined $20,000.)

But John Hall, a spokesman for the American Bankers Association, insists that banks have "Pentagon-level security." His advice: "Monitor your accounts. Protect your passwords and your computer."

3. "Your children are our future."

It wouldn't surprise most parents to know that their college-age kid can get a credit card. After all, university students, however financially dependent, are adults whose earning years are just beginning, making them "good risks" for creditors. What parents might not know is the fact that card issuers are now taking that reasoning a step further: "The big trend is marketing to high school students," says Robert D. Manning, the author of "Credit Card Nation" and a professor at the Rochester Institute of Technology.

Manning says most parents don't realize how early a child's name, address and other information can turn up in the databases used by credit card companies to market their products -- or that kids as young as 16 can get cards without parental permission.

"(Credit card issuers) know that if a kid gets in trouble, usually the parent will pay," he says.

What can parents do? Protect your child's information, and assume that all requests, however legitimate, will land it in a database somewhere. Gift cards, for instance, may offer protection if lost or destroyed, but they require personal data. Manning and other experts advise teaching teens about credit well before they get their first cards and monitoring their spending as they learn to use them.

4. "Our 'freebie' rewards are anything but."

In the hypercompetitive credit card marketplace, rewards are a way for banks to target big-spending niche audiences -- frequent fliers, for instance. But these programs often come with catches, such as exorbitant interest rates and high annual fees, so it's important to do your homework. "(A rewards card) doesn't make financial sense for just anyone," Manning says.

Before signing on, figure out how much you'd have to spend to earn the incentives from a given card. If the math works out to anything less than one penny earned per dollar spent (or a mile per dollar, in the case of mileage cards), then you could do better.

Also, be sure to look for the rewards that best suit your needs. For example, if you want an abundance of options, from retail goods and services to charitable donations, American Express' Membership Rewards cards let you accumulate points at the rate of a penny per dollar spent -- and double that at gas stations and drugstores. Or if it's air miles you're after, the United Mileage Plus Signature Visa is one card that stands out from the pack, with its one-mile-per-dollar ratio and host of travel benefits, including upgrades.

5. "Debit cards should come with a warning: 'Use at your own risk.'"

A few summers ago, Vicki Jacobson's college-student son, Craig, was coming home from a European vacation. Arriving at an airport, unable to speak Italian and his available cash growing short, he attempted to pay for his taxi ride with a debit card. The driver ran the card three times and a credit card once, but it was unclear after each pass whether the transaction had gone through. Finally, anxious about catching his flight, Craig paid with his dwindling euros and left Italy behind.

You can probably guess what happened: He was charged for that taxi ride three times on the debit card and once on the credit card. And that's when the fun really started: Months after the incident, the credit card charge was nearly resolved, but they were still unable to make any headway on the three erroneous debit charges.

"It can just be very difficult to penetrate the system," Vicki Jacobson says.

Why so much trouble with the debit card transactions? Debit cards resemble credit cards in all visible ways but have fewer protections for the consumer. Some debit cards offer purchase protection -- meaning you can replace a damaged item within 90 days -- but many do not.

And although unauthorized transactions, such as the three charged to Jacobson's son, are supposed to be refunded by the issuer, banks are less motivated to speedily resolve cases involving debit cards than credit cards. Why? Debit cards draw on a checking account, meaning they're essentially checks in plastic form. Credit cards, by contrast, constitute a loan -- meaning it's the bank's money, giving it more reason to protect it.

6. "Paid in full? Not necessarily."

Banks generally calculate interest charges in one of two ways: based on average daily balance or on something called two-cycle billing. The latter, which more card issuers are now adopting, penalizes customers who carry a balance, even if it's only on occasion.

Here's how it works: Say you start your month with a zero balance and charge an amount that you don't pay off in full at the end of the month. If your card uses the average daily balance method to calculate interest, you are charged nothing for the month you made the purchase and interest only for subsequent months in which payment is outstanding. With two-cycle billing, interest charges begin with the day you make the purchase.

Banks defend two-cycle billing as correcting the true interest charges for credit card purchases. Ron Brooks, a spokesman for National City, says it's a way to make sure card users pay interest should they suddenly go from being "transactors" (those who pay off every month) to "revolvers" (those who carry a balance).

One way to avoid the issue is to stay away from cards that use two-cycle billing to calculate interest charges and stick with those that go by average daily balance. Unfortunately, it's not a permanent solution: Your card provider can switch to two-cycle billing with just 15 days' notice, so you'll have to keep checking.

7. "We're accepted globally, but our exchange rates are from Planet Rip-off."

In recent years, plastic has all but replaced traveler's checks as the preferred method for making purchases abroad. Credit cards are widely accepted overseas, and they can be used in ATMs all over the world to dispense cash in the currency of whatever country you're visiting. But beware of hidden charges. Some banks have recently raised the rates on currency conversion from 1% to 3%. On top of that, ATM usage has its own fees attached.

Consumers Union recommends studying your cards' policies on foreign currency purchases before you leave home, then adjusting your spending accordingly. Cards issued by smaller banks, for example, may have lower fees, as do certain brand-name cards. American Express, which has long positioned itself as a card for travelers, charges a flat 2%.

Source: MSN

Viewed:935 | renu | 03/20/09

very good resource. thanks
ChaatMasala | 05/12/09

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