How Credit Card Companies Take Advantage Of You
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Credit cards make shopping convenient, especially with paper money on the steady decline. In fact, about 95% of Canadians own at least one credit card and there are over 75 million Visas and Mastercards active nationwide.
However, about 70% of Canadians pay full monthly balances. That means 30% are carrying credit card debt. Plus, many cards have unaffordable costs, which might make you wonder if your credit card company is actually taking advantage or you.
What Ways Do Credit Card Companies Take Advantage of Consumers?
Most credit card companies offer legal products and aren’t out to scam you (not in the conventional sense). Nevertheless, they have many ways of making money off you, like:
To hook you, some credit cards come with promotions of “0% interest” or low rates for limited periods. Sounds like a decent deal, right?
Here’s how you get taken advantage of:
- Many companies will move your payment date to later in the month. So, early payments won’t count toward the following billing cycle, which may lead to a late penalty and extra interest.
- If payment is “late”, you’ll lose your introductory rate. While you can negotiate with your provider and possibly get your fee removed and 0% rate restored, they’ll still charge you the interest.
- If you can’t afford your current card, the company may offer to transfer your balance to one with a better rate. Unfortunately, they’ll charge a balance transfer fee that offsets the interest you saved.
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Some credit cards come with periods where interest is “deferred” for several months. Similar to interest-free cards, this theoretically means that you’ll only pay your normal rate when your grace period ends. Not necessarily.
Here’s how the card company takes advantage of you:
- To avoid interest, you have to pay full balances. If there’s a single dollar of unpaid debt when your deferral period ends, the provider may charge you retroactive interest for each month of the term, along with your balance.
- You mistake an “interest-deferred” card for an “interest-free” one. If you don’t read your contract properly, you might wind up paying all the interest you accumulated when your deferral period ends, instead of having it waived.
Credit card companies can also catch your eye with rewards cards, which have various benefits. Financial institutions are particularly good at pushing these cards on their clients. Sadly, those benefits may not be worth it.
Find out if credit card rewards are worth it.
That’s because some rewards cards come with restrictions:
- Point Limitations – Your points may not be available until you meet the conditions, such as surpassing a minimum monthly spending limit, possessing a specific bank account, or shopping at various locations.
- Travel Restrictions – Some travel rewards cards seem like no-brainers until you realize your options are limited by specific distances and locations, carrier surcharges, blackout periods, and zero-cancellation policies.
- Expirations – Although many rewards cards allow you to accumulate points and cash-back dollars throughout the years, others require you to use your benefits within a designated period to avoid losing them.
- Redemption Rules – Credit card companies are also good at making their products seem easy but that’s not always the case. Once again, you may have to abide by strict conditions to redeem rewards.
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Lower Credit Limits
Most credit card companies are allowed to lower your credit limit for whatever reason. Generally, it’s due to low usage, a high balance, or too many late payments.
Here’s how this problem can affect you over:
- A lower credit limit can result in a higher credit utilization ratio. Using up more than 30% of your available limit is not a good financial habit to have and can be damaging to a credit score. If your credit limit is on the low side, it can be hard to only use 30% of it. Often times a higher limit can be beneficial, just make sure you don’t rack up too much debt.
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Credit Card Fees
As mentioned, some credit cards come with hefty fees for late payments and balance transfers. While such fees might seem reasonable at first, they can add up quickly and increase your monthly balances.
Other fees credit card companies charge include:
- Overdrawn Account – Don’t forget, every card has a specific credit limit and going over it can lead to further penalties.
- Administrative Costs – Most card companies tack on fees for whatever administrative purposes they can drum up, such as documentation.
- Activation Fees – Some credit cards come with annual fees of more than $100. This is common with higher tier and rewards cards.
Don’t Get Taken Advantage Of By Your Credit Card Company
Before you buy any type of credit card, read the terms and conditions carefully to find out every cost that could come your way after you start spending. Remember, while credit card companies offer useful products, they aren’t looking out for your best interests.
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