Published May 15, 2012
How Well Do You Know Your Plastic?
Your favorite credit card has sat in the top pocket of your wallet for years. You have memorized the interest rate, the credit limit and its perks. Think you know everything about your favorite credit card?
Even if you've carried the card for years, it could have a couple of surprises in store. Card issuers and the government continue to change card rules. Interest rates and credit limits can grow or shrink with your circumstances -- or those of the card issuer. And then there are those uncommon details you may have missed.
But don't stay in the dark. Like any card game, you stand a better chance of holding a winning hand if you know the rules. Here are eight secrets you may not know about the plastic in your wallet.
Fact No. 1: No Cap on Credit Card Interest
Even though you signed up for your credit card for its low interest rate, here's a scary, little-known fact: Many card issuers can raise interest rates as high as they like.
The top 10 banks that issue credit cards are federally chartered banks and don't have to follow state laws limiting interest rates, says Chi Chi Wu, staff attorney at the National Consumer Law Center.
"So they are free to set the rates as high as they want," Wu says.
Your interest rate is only protected for the card's first year (or first six months, if it's a teaser rate), under the Credit Card Accountability, Responsibility and Disclosure Act, or CARD Act. If you go 60 days late on a payment, that protection disappears. A variable rate tied to an index can also increase if the index goes up.
But if you've had the card for more than one year, the issuer can hike your rate even if you've been a model customer, says John Ulzheimer, president of consumer education for SmartCredit.com.
Two caveats, courtesy of the CARD Act: That hike applies only to new charges (your current balance will be assessed the old rate). And the issuer has to give you 45-day advance notice.
Fact No. 2: Say 'No' to Higher Interest
If your credit card issuer hikes your APR, you can say "thanks, but no thanks," under the Credit Card Accountability, Responsibility and Disclosure Act, or CARD Act.
It's possible the company will cut you a deal and let you keep the old interest rate (get that in writing), says John Ulzheimer, president of consumer education at SmartCredit.com.
But it's also just as likely the issuer will reduce your credit line, increase your minimum payment or simply close your credit card, he says.
But here's what the issuer can't do: Demand that you pay off the entire bill on short notice. If you refuse the new rate, you have at least five years to pay off your balance under the old rate, says Todd Mark, vice president of education at Consumer Credit Counseling Service of Greater Dallas.
Your higher rate may not last forever, either. If your issuer raised the rate after you paid your bill late or not at all for two months in a row, then your rate could come back down.
Under the CARD Act, the issuer has to review your account after six months. If you've behaved yourself, the issuer should reset the APR to your pre-penalty rate.
Fact No. 3: Credit Card Protections
You buy something online, and it never arrives. What you ordered in the store is not what is delivered. Or a charge pops up on your bill that's not yours. Don't worry; your credit card has your back.
Credit cards provide certain consumer rights that are a "forgotten powerful protection," says Todd Mark, vice president of education for the Consumer Credit Counseling Service of Greater Dallas.
For example, the maximum liability for unauthorized purchases on a stolen or lost credit card is $50 under federal law, though most issuers offer zero liability. If the loss involves just your credit card number, then you have no liability under the law.
The Fair Credit Billing Act allows consumers to seek a refund from their credit card issuers for an unsatisfactory purchase. The charge must be at least $50, and the purchase made within 100 miles of your home. You also must have made an effort to resolve the matter with the seller first.
In addition to federal rights, some cards offer return protection, protection against lost or broken merchandise, or extended warranties.
Fact No. 4: Card May Be Denied Abroad
Some card terminals overseas only accept EMV credit cards, named for developers Europay, Mastercard and Visa. These cards contain a microchip instead of a magnetic strip. Magnetic-strip cards are more common in the U.S.
"Many people get overseas and find out they can't use their credit card," says Todd Mark, vice president of education for the Consumer Credit Counseling Service of Greater Dallas.
Automated kiosks for tickets and transportation are the likeliest sources of frustration for U.S. travelers with mag-strip cards, says Gwenn Bezard, research director at Aite Group.
In some cases, they can use their mag-strip cards when an attendant is manning the ticket booth, he says.
At least 19 issuers, such as Chase, Citi and U.S. Bank, offer chip cards in the U.S., says Randy Vanderhoof, executive director of the Smart Card Alliance.
They issue them mostly in smaller numbers to customers who travel internationally, he says.
If chip technology is the norm in the country you're visiting, request an EMV version of your card before you leave if the issuer offers them, Mark says. Or, look into buying prepaid chip cards at your destination, says Bezard.
Chip card or not, let your issuer know about your travel plans abroad. Otherwise, the issuer could temporarily suspend charging privileges due to fraud concerns.
Fact No. 5: Fixed Rates Can Fluctuate
Just because your credit card has a fixed rate today doesn't mean it always will.
Along with changing your interest rate, card issuers can change the way your rate is calculated, says John Ulzheimer, president of consumer education at SmartCredit.com. So, a card that carries a fixed rate could become a variable-rate card in the future, he says.
If the interest rate goes up because of the change, then the issuer must give 45 days' notice under the Credit Card Accountability, Responsibility and Disclosure Act, or CARD Act, says Ulzheimer. If the rate stays the same or decreases, it's unclear whether the issuer must tell you.
But if the issuer wants to slice your credit limit or close your card, it doesn't have to tell you until after the fact, he says.
On the upside, the issuer must send a copy of the credit score used to make the decision to lower your limit or close your account under new federal rules issued last year.
They also must provide a free copy of your credit report if you ask, says Ulzheimer.
"At least you know why," he says. "Before, it was kind of a mystery and you really wouldn't know."
Fact No. 6: Card Balances Can Be Tricky
Some cards have no spending limit, but they may limit the amount you can carry from one month to the next, says Chi Chi Wu, staff attorney with the National Consumer Law Center.
If so, you're required to pay the amount that's greater than the "revolving" limit with your next payment, she says.
For example, charging $7,500 on a no-limit credit card may sound great in theory. But if the maximum you're allowed to carry month-to-month is $5,000, you're on the hook for $2,500, she says. Wu recommends doing the math before you charge.
So what if you never carry a balance? That might not be what your credit report is telling lenders, says John Ulzheimer, president of consumer education at SmartCredit.com.
Often the balance recorded on your credit report is the one listed on your monthly statement, he says. What your report may not show is whether you carry a balance or pay in full.
The trick to maintaining a zero balance on your credit report is to pay the bill in full before the statement date rather than the due date, he says.
The potential boost to your credit score?
"It's colossal," says Ulzheimer. "We're talking about the second most important category in (calculating) the FICO score."
Fact No. 7: Branch Bill Pay is Smart
Try kicking it old school and paying your credit card bill at the bank branch. The biggest benefit? Your payment will be credited the same day, says John Ulzheimer, president of consumer education at SmartCredit.com.
In a similar fashion, you can pay the bill for your retailer credit cards in the store itself.
Ulzheimer calls this one of the "lesser known" provisions of the Credit Card Accountability, Responsibility and Disclosure Act, or CARD Act, because "it's not as sexy as some of the other ones."
Showing up in person may be better than paying over the Internet because online payments are not immediate.
"They're just more convenient, and they save you the cost of a stamp," says Ulzheimer.
Even if you pay on the card issuer's website, most payments won't be applied for another two to three days, Ulzheimer says. It could take longer, a week or more, if you use your own bank's website and your bank isn't your credit card issuer.
It's also not mistake-proof, Ulzheimer notes.
"Just because you made your payment online doesn't mean the payment was actually made," he says. "You'd better double-check."
Fact No. 8: Late Payments Have an Impact
Your bill is late if your payment is received after the statement due date. That means your credit card issuer could hit you with a late fee. Your credit is blemished too, right?
Nope. Your issuer can't report a late account to the credit bureaus until the bill is 30 days past the due date per the credit bureau reporting guidelines, says John Ulzheimer, president of consumer education at SmartCredit.com.
And it can't raise your rate unless you're 60 days or more past due, according to the Credit Card Accountability, Responsibility and Disclosure Act, or CARD Act.
"I think this is one of those great secrets that a lot of consumers don't know," says Ulzheimer. "Delinquency means you've gone one full cycle late."
Also good for consumers: Issuers can't set midday deadlines for payments under the CARD Act. The new deadline is 5 p.m. on the bill's due date, says Todd Mark, vice president of education for Consumer Credit Counseling Service of Greater Dallas.
Your issuer also must mail your bill to you 21 days before the payment date. Plus, it has to be due on the same date every month, adds Ulzheimer.
"They can't keep moving it around," he says.