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“Hidden” credit card charges.

How can a credit card company make money? Let me count the ways…

  1. Universal default penalties. Card issuers regularly check their customers’ credit reports for late payments on any of their bills. Any late payment can be used as an excuse to increase your credit card’s interest rate, regardless of the fact that you have never made a late payment to the card issuer.

  2. Bait-and-switch card offers. Direct mail offers generally advertise the issuer’s premium card at low interest rates. However, the fine print says the company can issue a more costly non-premium card with a higher annual percentage rate if you fail to qualify for the premium card. So when that issuer’s card arrives in the mailbox, check the actual interest rate that you have now signed up for.

  3. Shrinking grace periods. Historically, grace periods—the time during which your transactions don’t accrue interest—were 30 days. They now average 23 days, and some issuers have whittled the grace period to 20 days. Some cards have no grace period at all.

  4. Inactivity charges. Credit card companies don’t make money if you don’t use your cards. Therefore, if you don’t use your card in six months you could incur a fee, as much as $15 . Some cards add these charges for shorter intervals of inactivity, read the fine print.

  5. Late payment fees. The national average is $29. And there’s yet another downside to paying late: a higher interest rate. In a 2003 survey, Consumer Action found that just one or two late payments resulted in a higher interest rate.

  6. Over-limit fees. Exceed your credit limit by even one cent and you’ll be hit with over-limit fees of $25 to $39. Then added to the bill after the $39 late fee you are charged a $39 over-limit fee.

  7. Balance transfer fees. It’s the big tease: A rock-bottom introductory rate to transfer your balance, but that tantalizing low rate may come with a steep transaction fee. Charges range anywhere from 3% to 5%, for transferring your balance to their card, which means transferring $1,000 at 4% will cost you $40.

  8. Payment allocation. If you’re carrying a balance and use your credit card for purchases and cash advances, or you’re paying off a promotional rate and then add charges beyond the promotional period, your card company will first allocate your payments to the charges that will earn it the most money. In most cases, that means it will apply your payment to the balance that has the lower rate, thereby allowing the balance with the higher rate to accumulate and compound interest.

  9. Consumer beware, it does pays to read the small print.

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