The Credit CARD ACT passed in 2009 has had some positive effects. Some of the measures protect consumers, and there are changes that can encourage consumers to pay off their credit card debt faster. Indeed, Consumer Reports says that there are indications that the requirement to include pay off date information on credit card statements is helping consumers see just how costly their credit card debt is — and they want to do something about it.
However, even with these positive changes, there are still ways to become ensnared in credit card traps. Credit card issuers are good at what they do, and determined to make money. They are businesses, after all. Here are 5 credit card traps you need to watch out for:
1. Business Credit Cards
It is important to realize that business cards are not protected by the CARD Act. The provisions of consumer protection in the CARD Act do not extend to “professional” cards. This is probably why I’ve seen a real increase in credit card offers in the name of my home business, rather than directly aimed at me. When you are choosing a credit card for your business, make sure you understand the terms, and that you are prepared for what’s coming. All of the practices that credit card issuers could engage in before the CARD Act are still legal with business cards.
2. 0% Balance Transfer
The 0% balance transfer is making a comeback, and for many this can be a good thing. However, it is important to watch out. These card offers are coming with higher transfer fees than before, and the “regular” rate at the expiration of the intro period is also higher than it has been in the past. Make sure you run the numbers to ensure that your savings outweigh the balance transfer fee, and that you will be able to pay off the card quickly.
3. Rewards Program Changes
Understand the rewards program, and any changes that might be taking place. In some cases, rewards caps have been instituted. Additionally, there are onerous rules regarding what happens when you are late with a payment, or when you miss a payment. Some credit cards are charging redemption fees when you use your rewards points. Make sure you read the fine print, and that you are aware of what could be happening with your credit card rewards.
4. Lower Credit Limit
This happened to me. One of my credit card issuers lowered my borrowing limit for no real reason. This can be especially dangerous if you haven’t really been paying attention to your new limit, as you could accidentally go over, triggering fees. Make sure you read everything your credit card issuer sends you, noting new credit limits, fees and other changes that are on the way.
5. Canceled Account
Finally, you have to be careful about what is going on with your account. You want to make sure that your account remains in good standing, and that it has regular activity. Otherwise, you might find it closed. Many credit card issuers are closing accounts for inactivity, and that can impact your credit score in some cases. It can also limit your access to credit when you need it. Make sure you stay on top of things, and that you make purchases that you can pay off quickly, in order to prevent an unexpected account closing.
This post was featured in the Carnival of Personal Finance.