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Americans' love affair with credit cards isn't fading. Credit card debt now sits near an all-time high of $5,700 per household and $16,048 for the average balance-carrying household.
On one hand, card issuers are offering up more and more perks, including large sign-up bonuses, and cardholders paying off their bills each month will continue to covet these lucrative rewards. On the other hand, many people don't manage their credit budgets well and stand to go deeper into debt.
Both above facts suggest Americans will be married to credit cards for the foreseeable future. With this in mind, here are 11 credit card insights that might surprise you.
1. Credit card companies are making a killing on interest charges
Credit cards' annual fees can be jaw-dropping, but that's actually not where card issuers haul in the most money. In fact, card issuers brought in a whopping $63 billion in interest income in 2016.
2. There are more credit card fees than you can count on one hand
The most common fees are for annual dues, late payments, cash advances, balance transfers, and foreign transactions. Be sure to read up on the different fees associated with any credit card you're considering.
3. 60% of Americans don't know their credit scores
Credit scores are the most important three-digit number that many Americans don't know about. Research suggests 3 in 5 Americans don't know their credit scores, according to LendingTree. Improving your credit score is an investment in your financial well-being that opens doors to the lowest mortgage rates and the best credit cards, which are typically closed off to people with poor credit.
4. Cash advance limits are lower than credit limits
You may want to read the fine print before tapping your credit card as an ATM for a cash advance. Cash advance limits tend to be a fraction of your total credit limit for borrowing. Keep an eye on the fees as well. Cash advances are not only typically charged a 3% transaction fee, but also incur sky-high interest charges.
5. Credit cards offer temporary interest-free loans
Credit cards offer cardholders temporary interest-free loans that span a 20- to 25-day grace period. Interest isn't charged when you pay off your balance by the due date, which is why people smartly take advantage of cash back and travel rewards and pay off their balances like clockwork. You won't come out ahead if you're earning rewards at a 2% rate and paying interest of 20%.
6. Applying for a sign-up bonus could improve your credit score
Some people shy away from claiming a credit card sign-up bonus, fearing the potential negative impacts to their FICO scores. This thinking may be wrong.
Here's why: 10% of your FICO score is indeed driven by new hard credit inquiries. All else being the same, your FICO score will see some downward pressure in the short term when applying for a new card.
But two other larger drivers are at play over the longer term. 35% of your FICO score is based upon payment history. Adding another credit card to your wallet -- and most importantly paying the bill on time -- can help improve your credit score by establishing a deeper history of on-time payments.
What's more, 30% of your credit score is driven by credit utilization, or your current debt divided by credit limits. The new credit card will add to your total credit available, and reduce your utilization ratio, to put upward pressure on your FICO score, assuming you're not borrowing more. Tally it all up, and 65% of your FICO score can be positively influenced by managing a new credit card wisely.
7. McDonald's has nothing on FICO credit scores
FICO, less commonly known as the Fair Isaac Corporation, sells more than 10 billion credit scores each year, which is four times the number of burgers McDonald's sells.
8. You may want to rethink making minimum payments
It takes 28.5 years to pay off a $10,000 credit card balance at an 18% APR when payments are 1% of the balance. Many card issuers require larger payments each month, including some stipulating a 4% minimum payment, which still means the debt will take a surprisingly long 13.5 years to pay off.
9. You can still make a payment on time but be hit with fees
The devil is in the details. Cardholders struggling to make payments may only be able to make partial payments, which can still result in late-payment fees.
10. You don't need to pay every late payment fee
Card issuers won't tell you this upfront, but every cardholder has the right to waive one late payment fee each year. The 2008 financial crisis led to sweeping credit card reform that included protections for consumers, such as late payment forgiveness. Cardholders just need to call their issuer to request this one-time payment forgiveness each year. But if you're unable to make a payment, it's worth considering the impact to your FICO score as well, since missing a payment can tank your credit score.
11. Get on the path to a higher credit score fast
Many credit card issuers now allow cardholders to request a credit limit increase online by answering a few questions. Many decisions are delivered instantly. Your credit score stands to improve shortly thereafter, assuming the additional available credit isn't utilized and your total credit utilization ratio across credit accounts decreases. This is a smart move for cardholders spending wisely on credit, but fans the flames for those prone to building debt.
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