Cash Advance Fees

Getting a cash advance from a credit card is a bad idea. Most card issuers charge a hefty fee for a cash advance, usually in the neighborhood of 2 to 4 percent of the amount. Then, many charge more interest on cash advances than they do on purchases. And, on top of that, there’s usually no grace period—so the higher interest starts piling up right away. Also, your payments will be allocated to the lower-interest charges first, so the interest keeps building on the cash advance amount.

Late Fees

Late fees are a classic example of "hidden fees"- ways the credit card issuers can extract just a little more money from consumers. Here's how they work. Late fees seem pretty straightforward. If your payment arrives late, the credit card company sticks you with a penalty, usually in the $15 to $50 range. Some card issuers have found creative ways to increase revenues from late fees. They actually stipulate a time of day when the payment is due, such as 1 p.m. (You'll find the time on your credit card bill, if your company plays this game.) So, if the letter carrier working the issuer's route is running late that day and the mail arrives at 1:05 p.m.-or if the mail always arrives after 1 p.m. at that location-even if your payment arrives on the correct day, you'll still get stuck with a late fee.

Over-Limit Fees

Most revolving or open-end credit card come with a credit limit. This limit can be as low as $250 and as high as...well, they can be unlimited but most standard cards peak at around $40,000. Many consumers would expect their credit card to be declined if a transaction would put the card over their credit limit. But, increasingly, credit card companies are allowing these transactions to go through, then slapping consumers with an over-limit fee of $20, $25 or more.

Comparing Numerous Cards

If you don’t want too much legwork to identify a good credit card, you can simply visit the Federal Reserve System’s site at www.federalreserve.gov. Every six months, the Fed surveys the terms of a host of credit card plans, then publishes a report of the findings, which are available on-line. While this is a reputable report, you still will want to contact the credit card issuers directly to confirm that all the information is current and to learn about other credit card plans available.

Credit Card Scams

While there are many reputable providers of credit cards, there are also many scam artists swimming in these waters. The crooks prey on consumers with problem credit by making an offer that, if you think about it, sounds too good to be true. The magic words that so many rip-off artists use are: "You have been approved for a credit card. You cannot be turned down."

Secured Credit Cards

If you do have problem credit, there is a way to get a legitimate credit card and start rebuilding your credit. It's known as a "secured credit card." Like a loan on a house or car, these cards are considered "secured" because you provide some collateral. In this case, it's in the form of a security deposit. Basically, you send the credit card company a check, and the company sends you a credit card with a limit based on the amount you deposit. The credit limit usually is from one to three times the amount of the security deposit-so you might provide a $99 security deposit to secure a card with a $200 limit.

Chapter 4 Conclusion

Issuing credit cards can be a profitable business for banks and other outfits-that's why the marketplace is so crowded with brochures screaming about great offers. If you take your time and review these offers, you can find some good deals. Know, from the start, that almost all issuers-including big, legitimate ones-hide fees and high interest rates in the small print of their disclosure forms and agreements. Take the time to read these. Frankly, some credit card issuers play sleazy games when it comes to telling consumers about conditions, terms and rates. In 2001, the Office of the Comptroller of the Currency settled case against the First National Bank of Marin (based, oddly, in Las Vegas), involving misleading and deceptive marketing of secured credit cards. The OCC said: First National Bank of Marin markets to consumers with poor or nonexistent credit histories. Many credit card lenders, as a matter of prudent underwriting, will require such consumers to maintain a savings account large enough to secure the line of credit. Under the bank's program, the funds for the savings deposit are instead charged against the credit line, reducing the amount of available credit until the charge is paid off. In one of Marin's programs, applicants had to pay $79 to apply. The resulting card had a credit limit of $250 to $600-but was secured by a savings deposit of $200. Because that amount was charged against the card, along with another $56 in fees, some cardholders started out over their limits. That clearly defeats the purpose of having or carrying a credit card.

Using a Credit Card Wisely

Using a credit card wisely means planning when and where you'll use it. More than anything, avoid using your card for impulse purchases. These images fill credit card ads on TV and elsewhere; but a spontaneous Christmas gift shopping spree is the worst use of a credit. Another good thing to avoid is...anything your card issuer tries to sell you. Credit card companies work hard to offer all kinds of products and services to extract money from their customers. Take credit card theft insurance, for example. You don't need this. If your card is stolen, you're only liable for a maximum of $50 worth of purchases.

Debit Cards

We've mentioned debit cards in several places-and will in several more, later. So, these cards are worth a mention here. They can play a role in the smart use of credit cards. Beginning in the 1990s, Visa and MasterCard convinced most banks to "co-brand" their ATM cards as debit cards carrying either the Visa or MasterCard logo and a similar account number. This arrangement meant that ATM cards could be used at bank cash machines and like general-purpose credit cards at stores, hotels and restaurants. Debit card sales aren't credit sales, though. Essentially, the sales are like electronic checks-they result in a direct debit from the savings or checking accounts to which the cards are connected. When debit cards first came into wide use, some financial experts warned that they posed bigger risks than traditional credit cards. In some cases, banks didn't apply a credit card's $50 liability limit to debit cards that were stolen or used fraudulently. But more recent banking industry practices and government regulations have extended the $50 limit to debit cards.

Balance Tranfers

Credit card issuers promote balance transfers heavily in their advertising and direct-marketing offers. As we've warned elsewhere in this book, transferring credit card balances is not the same thing as paying off credit card debt-even though card companies use terms like "pay off your other cards" in their promotions. But a well-timed balance transfer can reduce your money payments, in some cases substantially. So the process is worth some mention. The key to a smart transfer is doing your homework. You may even want to create a chart like the one below to compare deals. We put together this example, assuming that you'll pay on time each month and maintain a constant balance of $2,000.