Is Your Credit-Card Company Secretly Screwing You Over?

Most credit-card holders don’t realize this, but there’s an easy way to lower your card’s interest rate:

Just ask your provider to do it.

No joke. Just call them up and say in your nicest voice that you’d like your APR lowered. Don’t be rash and threaten to leave or exhibit any histrionics like that. Just say that you’ve been a cardholder for such-and-such period and you’d like to have a lower rate. If you’ve been a good customer, they won’t want you to go.

Surprising? Well, if you’re like most American consumers, and even many financial professionals, there’s a lot about credit cards you don’t know. And it’s exactly this lack of knowledge that has allowed the banks who are in the card business to siphon money out of your pockets for the purpose of lining their own.

Of the approximately 120 million households in the U.S. today, some 47% carry a monthly card balance. On average, that balance totals $14,517—which is actually a significant drop from the five-year high of nearly $18,000 back in 2008. So let’s do the math. Assuming an APR of 20% (which for many cardholders is generously low), after one year that balance is up to $17,420. After another year, it’s at $20,904. Twelve months later, it’s at a whopping $25,084.

If only the S&P index funds performed like that.

So what can you do to avoid getting gutted by the purveyors of plastic? The list is quite simple:

  • The best advice is the most obvious: Don’t carry a balance in the first place. The credit-card companies have a name for customers like this: bums. These people are basically getting a service—the convenience of not having to carry cash—for free. Plus your credit score goes up if you consistently pay off your cards in full. Put the cards to work for you.
  • Be very, very suspicious of rewards programs. Those bonus points and free air miles that look so appealing in the card company’s brochures frequently don’t add up to much; many of them have hidden fees and blackout dates, and often the range of merchandise you can redeem them for is very limited. If the bargain-hunter in you is too strong and you just can’t resist enrolling, be sure to check the program’s online reviews beforehand, as well as the websites of the airlines you plan on using.
  • If you don’t like something, say so. If you’re a customer in good standing and one of your payments arrives a few days late, or your interest rate is too high, most likely you can get the bank to work with you. The intensity of the competition means the banks are eager to keep valued clients. Frequently they will forgive late charges, remove late-payment records from your credit history, drop annual fees, or lower your APR if you’ve shown them you’re a solid customer. Of course, normal rules of courtesy apply. Be polite, but firm.
  • Do not, repeat, do not, exceed your credit limit. Oftentimes, when banks lower your limit, they set it at just a few dollars above the balance you’re currently carrying. Sneaky. If you then go over that magic number, not only will you have to pay a hefty over-the-limit fee, but your credit score will drop. Remember, your credit score depends in part on the percentage of your available credit that you use. Use it all, and you’ll be seen as a potential credit hazard by the good people at TRW, Experian, and the like.
  • Avoid consumer-protection plans like the plague. These plans offer no benefits whatsoever to customers; if you find yourself out of a job, they freeze your account and charge you an interest rate on your outstanding balance, typically 1%. That’s on top of the ludicrous fees they charge you for this “service” in the first place.
  • Be on the lookout for “overseas” charges. When the federal government tightened its credit-card regulations after the 2008 financial debacle, many banks raised their foreign-transaction fees to make up for lost revenue. Many of these rates now hover around 3%, and frequently they apply even when you, the customer, are not overseas. That is, they can be assessed even if you order from a foreign company from within the States, so check your statements carefully.
  • Call out the banks on bogus charges. A friend of mine once was car shopping and noticed the abbreviation “ADM” on the list of features for a particular vehicle. When he asked the salesman about it, the latter smugly said it stood for “additional dealer markup.” Incredible, but most people would have been content to pay it, and banks are not above pulling the same scam. Many have teaser rates that suddenly go up at a mystery date that is buried in the cardholder agreement’s fine print, while others charge fees if your card doesn’t show a certain amount of activity per year. (The latter is a way of reinstating inactivity fees, which were technically outlawed by the CARD Act of 2009. Which is to say, the banks want you to pay something for nothing.) Also to be avoided are so-called “upfront processing fees,” which are frequently applied to low-credit-limit cards to get you closer to (and hopefully, over) that credit limit. Thereby incurring more fees, and…well, you get the idea.

Like so many financial organizations, the banks count on you to be ignorant, obedient, and passive. But at the end of the day, remember: they’re there for you, not you for them. There’s no reason for you to pay money you don’t have for services you don’t need to please people you’ve never met.

To paraphrase Gordon Gekko, getting back on track, credit-card-wise, will cure what ails not just your individual bank balance, but the balance sheet of that great malfunctioning financial-services provider that is the U.S.A.

Posted by on August 21st, 2012 at 9:23 am


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.