Do not trigger penalty rates on your credit cards
If you have had a credit card for a very long time, then you will know that there was a time when defaulting your payment could attract a penalty of 29.99 percent. But, thanks to the Credit Card Accountability, Responsibility and Disclosure Act of 2009, this is not the case anymore. This, however, does not mean that customers can go scot free when they default on their monthly payments. There are other penalties in place to make up for the ones that were levied before the CARD act came into implementation. The penalty in the current scenario is on the interest rates which can go as high as 29.99 percent. For those who feel there is no difference to what was in the past and what is now, here is a better understanding.
In the past, the penalty rate was applicable to current balances as well as new purchases. But, in the current scenario this rate is charged only on new purchases and not the existing balance. There is an exception though. If customers default on their payment by 60 days, the interest rate of 29.99 percent is applicable on new purchases as well as the current outstanding balance. So, as long as customers do not default on their payments by 60 days, they are still relatively safe as compared to before the CARD Act.
Another important development post the CARD Act is the fact that banks have to give at least 45 days notice period to customers before the rates on their credit cards go up. This gave customers a huge sigh of relief because in the past banks held the reigns and could increase the APR as and when they deemed it fit. But, this does not imply that there are no limitations now. Though the regulations of the act has stipulated that each customer account be reviewed after every six months and interest rates lowered based on good payment record, there are no specific rules the curb the limit up to which the interest rates can be hiked if customers continue defaulting on their accounts. This is one of the reasons for the presence of a few cards in the market that charge extremely high interest rates on their cards.
If you want to avoid getting penalized, then there are a few triggers you need to avoid. First of all, avoid defaulting on your payments. Ensure you pay off at the least the minimum balance each month. Secondly, do not override the credit limit offered on your card.
