Credit Cards and Fine Print: Why You May Be Paying Fees, Even if You’re Paying on Time

Most people who have taken the time to repair their credit are careful about maintaining it. Paying bills on time regularly becomes a habit, and you might assume that your responsible spending will be rewarded in lower interest rates and better terms on your credit card. While this may be true in some cases, more and more credit card companies are factoring fees and steep interest rates into their profit model. This means that even if you pay your card on time, you may be charged more than you realize. Here are some terms you may see in the fine print of your credit card and what it can mean to you in terms of fees, interest and extra payments.

Universal Default

You may notice that if you miss a payment by even a few days with one credit card account, your other credit cards will revert to a default rate. This is what’s termed ‘Universal Default’ and some credit card companies use it to trap you into higher interest rates. After all, it’s almost certain that you’ll be a little late at some point, and this allows the credit card company to make a bigger profit, even if you aren’t late making payments to their company in particular.

Unfortunately, the only thing you can do to avoid universal default if it is a part of your credit card agreement is to pay all of your credit card bills on time, every time. A better bet is to look for a card that doesn’t have this stipulation in the agreement, and transfer your balances there.

Interest on Late/Overlimit Fees

Some people do not realize that if you are charged a late fee, interest accrues on the fee as if you made a purchase. This essentially means that you are charged more for each time you go over your limit or are late on your payments – and the interest continues to build month to month, so that it becomes more difficult to keep your balances down and avoid more fees and damaging notations to your credit report.

Double Cycle Billing

Double cycle billing is another financial ploy that many credit card holders do not realize is working against them. Essentially, double cycle billing charges interest twice on the same purchases, if you make a partial payment to bring down the balance without paying it off entirely. For example, if you had a zero balance on your card and you made a purchase of $1000 dollars, paying $400 when the bill was due should mean that you would only have interest charges on the $600 that’s left on your bill. This is true with cards that use conventional billing. However, with double cycle billing, you would actually have interest on $1600 the next month. The initial interest would be charged to the $1000 purchase you made, and then additional interest on the $600 balance remaining on the card.

This is another of those instances when it pays to shop around and read the fine print. Be certain your grace period for purchases is spelled out, and if not that the actual interest charges are not double-billed.

“Courtesy” Overdraft

Many times, credit card companies will allow you to keep charging on your card, even if you are over the limit. This means that if you don’t keep a close eye on your balances, you could be charging up a fortune in overdraft fees. While this type of ’service’ is usually called a ‘courtesy’ overdraft, it is actually a disservice that hurts your credit score and makes it difficult for you to obtain more credit, as well as making it difficult to pay off what you already owe.

One of the easiest ways to avoid courtesy overdraft is to set up a reminder that will alert you when you are nearing your credit card limit. Be sure to set the alert at a reasonable amount: $100 to $200 left on your card should give you plenty of notice so that you don’t overspend unknowingly.

If you pay careful attention to the terms on your cards, and plan your credit card purchases accordingly, you can avoid falling into the traps that credit card companies set in order to take more of your money each month. Shop around for fair cards that don’t use deceptive billing practices and you’ll be well on your way to avoiding woes due to fine print.