Credit Cards » Credit Card News » Credit Debt Traps Buried In Fine Print Could Mean Trouble
Date June 23, 2009

Credit Debt Traps Buried In Fine Print Could Mean Trouble

The way you look at your credit card probably says a great deal about how much credit balance you carry. If you are one of the lucky few who have remained debt free even in this stifling credit atmosphere, then you are probably someone who spends time to look into your bill and decipher what all the fine print means. If, however, you are one of the many American consumers who are carrying large debts on their credit cards, then there is a large possibility that you are among the American consumers who consider their credit card bills as too arcane to even read.

credit card debt problemOne of the measures that the credit card bill will enforce when it becomes active is to force credit card companies to make their bills more easier to understand to the common credit cardholder. The problem is that, currently, credit card companies distribute bills which require some expert deciphering before the credit cardholder can really grasp what is going on with their bills. Here are a few details in the fine print of your bills which you should be aware of.

Available Credit

The problem with available credit is that, most credit card companies consider it more of a suggestion than an actual number which they enforce. Your available credit is something which you should always be aware of. Credit card companies, although they will inform you of your available credit, will happily let you charge over your limit. That way, they can earn form you by charging an over-limit penalty fee.

Another problem is that, credit card companies may suddenly decide to lower your limits without duly informing you. This can happen if they think that you have become a risky borrower.

Double Billing

Double billing was one of the biggest issues when the credit card bill was still up for debate. Double billing is when the credit card company charges you interest rate based on a previous balance. For instance, if you charged $300 and then paid only $200 before the bill became overdue, the company would charge you interest based on the original $300 that you owed.

Residual Interest

If you have an overdue balance and you pay it in full, you would think that you are now at zero balance. However, you would then find out that, when the next bill comes, you have some residual interest to pay for. This happens because your balance will still earn interest in between the time when the bill statement was issued and the time that you actually pay off your balance.

When the credit card bill becomes active, these deceptive practices will finally come to an end. However, that is still a few months off and credit card companies are likely to continue these practices as the months continue. The best way for you to avoid these deceptive practices is to be balance free every month and to keep a keen eye on your bill’s fine print.

Date May 25, 2009

The Dilemma of Credit Card Balance Chasing

The passage of the credit card bill last Friday has the credit card industry all shook up. The legislation contained in the bill will change many of the fundamental practices of the credit industry, some of which were downright abusive. The bill will be implemented after nine months, giving credit card companies some time to adjust to the new legislation.

The Dilemma of Credit Card Balance ChasingCredit card industry practitioners have constantly been issuing warnings that the passage of the credit card bill would mean making less credit available for consumers. The credit card industry says that, when the bill passes, it will mean that introductory interest rates will increase and annual fees will once again be charged to credit cardholders, regardless of credit standing.

Another practice which experts are warning credit cardholders about is balance chasing.

Balance chasing is essentially when the credit card company lowers your credit line as you pay your balance. In the end, the cardholder gets a drastically lowered credit line even as he or she has paid off the balance of the credit card.

To illustrate, say for instance that a credit cardholder has a credit card with a limit of $10,000 and he has a balance on it of  $8,900. Wanting to lower his debts and give himself some financial leeway, he makes a payment of $2,000. This leaves a balance of $6,900 and he would expect to have an available credit of $3,100. However, with balance chasing, the credit card company would actually lower the cardholder’s available credit. In this instance, from a credit limit of $10,000, it will drop to $7,000. This will continue to cycle until the credit cardholder’s credit limit will be far lower than the one that they started with.

Balance chasing has a very negative effect on the cardholder’s credit score. Since the credit limit constantly remains close to the credit balance, it would seem that the cardholder’s balance is always near his credit limit. It also makes the credit card essentially useless to the credit cardholder during times of emergencies because of the greatly lowered credit limit.

Although balance chasing is not widely spread for now, some industry observers see this as something that will soon become common practice. As the credit card industry continuous to try to limit their exposure, balance chasing becomes more and more appealing.

Obviously, balance chasing will it hurt most for those with a balance in their credit cards. It becomes more and more important for cardholders to payoff their balances as quickly as possible to make sure that they have credit available when they need it most. Consumers should turn away as much as they can from using their credit cards and either use cash or debit cards instead.