Late payments, over-the-limit fees and finance charges can cost an arm and a leg. Here's how to avoid crippling credit.
By Jessica Dickler, CNNMoney.com staff writer
November 1 2007: 10:41 AM EDT
NEW YORK (CNNMoney.com) -- Your boss might give you a break if you're late to work a few times, but don't expect the same courtesy from your credit card issuer. Pay your bill late even once and you'll take a real hit to your financial future.
Late payment penalties on credit cards generally range from $15 to $39. But that's just the beginning. If the late fee pushes the balance on your next bill over your spending limit, then you also get hit with an over-the-limit fee (another $39).
And it doesn't end there. Going over your limit will cause the card issuer to automatically raise your interest rate, or APR, substantially.
Then there's a finance charge, which is the interest on the balance you carry on your card and can be as high as 35 percent.
Think you won't get hit again if you pay in full next month? Think again. Many banks calculate finance charges using what's called double-cycle billing, a confusing practice that averages out the balance from two bills, so you get hit with retroactive interest on your next bill as well, even if you've paid off the balance.
"Generally a late fee leads to an over-the-limit fee," said Chris Viale, president and CEO of Cambridge Credit Corp., a nonprofit credit counseling agency based in Agawam, Mass. "Once those fees are in play, the interest rate goes up to 29 to 32 percent."
http://money.cnn.com/2007/10/31/pf/raw_deal_overdraft/index.htm?postversion=2007110110
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7 comments:
This is an interesting article on how credit card companies and banks can make fast money off of consumers, but we have to build our credit some how.
Getting a credit card is definitely risky. I just got my first credit card a year ago after being really paranoid about all the hidden fees and what not.
I only decided to get a credit card after asking around and doing my research on which credit card would be best for me. If you are just starting out the first thing to look for is a CC which has no annual fee. Most student cards have an introductory 0% APR & 0% cash advance for the first 6 months. During the 'regular APR' you can definitely find some credit cards with interest rates between 10%-15%. I wouldn't suggest going anything above 15% just to be safe.
I don't know about everyone else, but I get a whole bunch of junk mail that consists of being pre-approved for cerdit cards...I recently heard that if it is possible to call you credit card company and use those letters as leverage to negotiate a much lower APR, etc.
Bit of a side note but I thought it was interesting, somewhat relevant, and possibly useful to someone.
-Angela
never spend on more on your credit card than what you have in cash, unless its on triple 911 emergencies.
never spend on more on your credit card than what you have in cash, unless its on triple 911 emergencies.
I have yet to get a credit card because I've always though 'why pay later what you can pay now'? But I really do need to get one to build my credit. It's just things like this make me nervous, credit card companies are out to make money and from what I understand there aren't many (if any) regulations on what they can charge in terms of interest rates or fees.
its definitely important to build credit whenever you can. I agree with belinda, esp for students it is not worth going above 15%
I love my credit card. I think it is great to get to borrow money for a month, while saving up to pay it back. That is the key, so long as you pay it back each month, you should get a card. Otherwise it is not beneficial to your credit whatsoever. Don't get a card if you have no income.
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