How the credit card game is rigged

May 19th, 2007|| · No Comments ·

This would not be a personal finance blog if I did not pump you full of fear about the evils of credit cards and credit card companies from time to time. And it would surely not give me any challenge to secure advertising to pay the mortgage either.. LOL.

I was reading one of my favorite Washington post columnists Michelle Singletary this morning and I found a little post of hers on “How they rig the credit card game”.

Universal Default

The first of the dirty tactics, which is an industry standard, is called universal default. It is basically the right the credit card company reserves to hike your interest rate if you miss a payment, over draw against you approved limit, etc.

Two Cycle Billing

Where a company charges interest based on two cycle billing the interest is calculated on the balance you carry over the previous two months. For example, say you start the first billing cycle with a zero balance and then charge $1,000. Even if you make a payment of $900, leaving you with a balance of $100, you still pay interest on the entire two-month billing cycle, so you pay interest not only on the $100 balance, but also on the $900 from the first month.

Fine Print is confusing most Americans

Recently the Senate’s subcommittee on investigations took a look at some of the credit card industry practices. Credit card executives were summoned to Congress in January and again for the subcommittee hearing this month to defend outrageous fees and interest rates.

“I don’t believe that the average consumer understands it, believes it, thinks it’s fair, and I don’t either,” said Sen. Carl M. Levin (D-Mich.), chairman of the Senate permanent subcommittee on investigations.”

The Government Accountability Office found that while millions of consumers use credit cards, many are confused by their own credit card agreements.

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