Different ways credit cards can fleece you

There was some exuberance when President Obama had signed the new CARD Act, which put an end to faulty card practices such as late billing, sudden increases in rates, etc. However, credit card companies are a clever, and they always seem to find newer and innovative ways to increase fees on one pretext or the other. They are making up for their lost revenue through these deceptive charges and tricky strategies.

A few examples of how credit card companies are manipulating the rules are:

• Rates are increased on prime customers and the ones who pay on time. The increase is around 30%.
• Penalty rates have been hiked even if there is only one day's delay in payment.
• The credit limits have been reduced without notice.
• Obtaining a new credit card has become much more difficult.
• The credit score of prime customers will eventually be raised. Hence the numbers of subprime customers will automatically increase.
• Cash advances as well as balance transfer fees have been increased.

At least 40% of banks have, or will increase their annual fees in the near future. If the existing fee is $29 it would be increased to $99. The rates are converted to variable ones now, especially when the prime index rate is really low and this is most likely to go up.

Issuers are finding ways and means to charge customers 'fees' even on regular transactions. For instance, they are charging an international fee, even when the transaction done is in dollars. Credit card issuers are also cutting back on rewards programs. For instance, the threshold to qualify for a free flight has been increased. Getting cash back is also much higher, especially when this increase is one millions of customers nationwide. The inactivity fee is added when the card is not used, and there is also a low activity fee if the transactions fall below a certain category.

There is closure of accounts without prior notice. For instance, a card could be declined and one may later get to know that the card has been cancelled. As per the Federal Reserve study, more than half the banks are likely to cut credit as customers are forced to spend less.

In spite of all these drawbacks one can still stay on track by spending appropriately and paying on time. Avoid the credit cards that come with tricky introductory rates. Pay bills several days in advance to avoid late fees and pay the full amount. Do not cross the credit limit. Never spend on something that cannot be afforded. Seek help when in trouble.

Doug Nicholas

Doug Nicholas, a financial consultant by profession with a Masters degree in International Business from Brown University, is also an ardent writer. Though he has a full time job at one of the companies listed on Wall Street, he does manage to squeeze in time to follow his passion. He puts his ideas to words in his articles related to finance and business.