Secrets of Credit Card Companies

Credit card companies often promise you zero percent interest and other perks in an effort to encourage you to apply for a new card, but there are actually secrets behind that. I have nine credit cards in my hands and I have been with credit card companies long enough to know what credit card issuers are up to. Credit card issuers have "dirty little secrets" that they do not tell you, their customer. However, as you use the credit card daily, you will find out about them. By that time, you may be filing for bankruptcy if you do not keep yourself aware.

Number One
There's no such thing as zero interest. The annual fee is "interest" in itself. Credit card companies ask you to pay the fee even if you have never, or will never use the card. In fact, your annual percentage fee can increase the more you use your credit card. In the US, for instance, it is not unusual for a person to have a 30% annual percentage fee. Aside from annual fees, there are also transaction fees, which are charged whenever you use your credit card. Therefore, credit cards that have high interest rates makes you pay a lot more than you should because you pay those along with the transaction fee. Always remember that although credit card issuers may offer you a certain interest rate, this may change over time depending on how you use your card or how you pay your existing balances.

Number Two
Credit card companies hate those who pay off their balances at once. This is because credit card companies make very little money from them. They want you to have a hefty balance because they grow every month and therefore the company's earnings skyrocket because of you. They want you to pay only the monthly minimum so that can get the most out of the money they lent you. If you are a bad payer or a minimum payer, you are one of those people who contribute to 90 percent of the company's earnings. I am a bad payer, so I know. My monthly credit card payments constitute 50% of my earnings.

Number Tree
They love late payments. Why? Because whenever you pay late, you give the credit card company the right to charge you penalties that can be very high, especially if you are consistently late. The APR or Annual Percentage Rate can also skyrocket. The "best" thing is that even if you paid your credit card company on time but you failed to pay another, this can instigate a penalty on your credit card company that you paid on time.

In the US, it is known as the "Universal Default Clause", which protects credit card companies from people who have the tendency to be "credit risks". Late payments also cause your credit scores to drop immensely. If you have a history of on-time payments with your credit card company, a single late payment can be forgiven but this is still at the discretion of the credit card issuer. I have been charged for a late payment many times. The penalties went from as little as $5 and grew up to $36. I don't understand the math of credit card companies but charging too much is never good.

Number Four
You are entitled to a debt validation. This allows you to know exactly how much you own the credit card company under the legal contract terms. No debt collection agency, including your credit card company, has the right to apply penalties or surcharges that do not follow the original contract between you and the company you owe. Requesting a debt validation will assure you that the amount the credit card company is asking you to pay is the correct amount of money that you owe.

Number Five
Consolidating your debts is not the answer. Debt consolidation is the process of piling up all your debts so that you only have one company to pay. Many credit card issuers offer debt consolidation to "pay-off" the debts for you, but you actually end up paying more. Debt consolidation is tricky because it reduces the number of bills you will get every month, but if you do the math, it is still to the credit card issuer's advantage and not yours. Rather than consolidating and dealing with another credit card issuer, plan your payments for your existing credit cards. If you are already highly indebted, stop using the credit cards until you have paid them off.

Number Six
Cash advances have higher interest rates. I used to withdraw cash from my credit card when I was still new to the "credit card world". I noticed an increase in my credit card bills month after month, until I stopped advancing cash and saw the difference. Cash advances have higher interests with them, not to mention that they also have higher transaction fees.

Number Seven
Staying below your credit limit is the way to go. Although some credit card holders are inclined to think that it is best to maximize their credit card use, it actually hurts your credit score. Staying at least 30 percent below your credit card limit gives you a better credit score. If you really need to max out your credit limit, apply for another credit card and stay below the limit. This allows you to spend more without hurting your credit limit. Just make sure you can pay off your bills on time.

If you are a credit card holder, I sure hope that this article helps you avoid being highly indebted in the future. Credit cards help you pay bills and purchase things whenever you do not have cash, but they can also be a real problem especially if you spend more than you earn. The trick is to pay your credit card bills on time and choose one that offers the lowest interest rate and the lowest transaction fees. Lastly, do not apply for too many credit cards so you avoid being tempted.