10 things credit card issuers don't say

1. "We're waiting for you to screw up."

Despite new credit card rules, there are still many factors that can cause a credit-card issuer to raise your interest rate. Among them is when a lender reviews your credit history and decides to change the terms of your credit card after it's informed that you missed a payment with another credit issuer.

The Credit Card Accountability Responsibility and Disclosure Act does offer consumers some protection here, though. Should your credit-card issuer change the terms on your credit card, in most cases it can do so only for purchases going forward, not the balance you're already carrying.


Credit card horror stories
The credit-card industry claims that what it's doing is managing risk. "Prior to these reforms, most of the larger issuers would review risk profiles on average every 90 days," says Peter Garuccio, a spokesman for the American Bankers Association, a trade group. He says many of them build their own risk models, basing them on reports from the credit bureaus. He anticipates that this practice will continue. "It's a matter of sound underwriting," Garuccio says.

2. "We'll give you advance notice -- but your options are limited."

With the Credit CARD Act, issuers need to give you at least 45 days' advance notice before making a significant change to your account.

"The key is the flexibility with which they can apply any change to a customer's profile," says Garuccio, explaining that the customer has the right now to reject any new terms a credit card issuer plans to impose. If a customer rejects the changes, the issuer can either maintain the account under the existing terms until its expiration date or close the account. Either way, the customer is responsible for paying off any balance under the original terms.

The options for consumers are limited. Shutting down a credit card will lower a credit score, while the alternative often means having a card with a higher interest rate.

3. "When it comes to identity theft, you're at risk."

Credit cards are a common gateway for identity theft, and it's almost impossible for consumers to be certain that their identifying information won't be compromised, says Murray Jennex, an associate professor of information security and information systems at San Diego State University. But there are some basic steps you can take to minimize the chances.

Before you give your credit card information to a Web site, make sure it's secure; look for a URL beginning with "https://" and for the image of a padlock by the Web address. Don't store personal information online, and update your computer's antivirus software each year.

Also, don't respond to e-mails requesting your personal information and don't click on links included in them. "Your bank won't contact you in an e-mail asking for this," says Margot Mohsberg, an ABA spokeswoman. And if there's a link in the e-mail, "just by clicking on it, fraudsters can download 'malware' that would allow them to coast with you when you go into your bank account." If you're unsure whether the source is actually your lender, call and ask.

Consumers who fear their credit card information has been compromised should immediately notify the issuer and, if possible, file a police report. In most cases, credit card issuers will work with you; while you will likely be liable for the first $50 of unauthorized charges, the issuer typically covers the rest of the losses. Mohsberg says that credit card issuers are increasingly waiving the $50 payment. They've "found it's not worth it to charge customers that amount of money; it's much better for the company to completely reimburse that fee and to ensure consumer trust."

4. "We haven't forgotten about your kids."

Many of the new credit card rules are geared toward protecting those under 21 years old. But don't think the rules will keep credit card issuers at a distance.

For example, issuers no longer can give free stuff to college students in exchange for filling out credit card applications on college campuses or at college-sponsored events. But issuers can still give out those freebies as long as they don't require students to sign up for a credit card to get them. Representatives of Citigroup and Bank of America say their banks aren't doing this.

5. "Our rewards can throw you off track."

In the credit card marketplace, rewards are a way for issuers to target niche audiences -- frequent fliers, for instance. Before signing up, figure out how much you'd have to spend to earn the incentives from a given card and if the card is geared toward your spending habits. And check to see if rewards on specific purchases are offered throughout the year; some credit cards rotate their rewards every few months, says Gail Cunningham, a spokeswoman for the National Foundation for Credit Counseling. With rewards cards that offer cash back, find out if the amount you can earn has a ceiling. And for cards with travel rewards, inquire about blackout dates and other limits.

Consumers who are approved for these credit cards should also avoid carrying balances, because interest payments can eat into savings, cancelling out the value of the reward. "What people tend to do with rewards cards is charge everything," Cunningham says. "But if you're a person who carries a balance month to month, don't consider (such a card), because you'll be paying interest on it and probably not gaining the rewards you should."

6. "Deferred-interest plans can leave you worse off than when you started."

Stores often promote deferred-interest credit card plans with the sale of big ticket items like furniture, electronics and watches. But often these plans really are too good to be true.

Typically, such plans -- financed by a lender -- allow a consumer to purchase an item without paying interest during a promotional period, such as six or 12 months. But if the promotional period ends and the consumer hasn't paid off the balance in full, interest kicks in and the shopper is retroactively charged interest on the balance for the entire promotional period, says Chi Chi Wu, a staff attorney at the National Consumer Law Center.

Also, if a consumer is more than 60 days late with a required payment during the promotional period, the 0% interest could be replaced with retroactive interest charges. "Even if consumers understand the pitfalls, such a tactic relies on consumer optimism or failure to think of the worst," like losing a job or getting sick and being unable to make payments, says Wu.

7. "Double-cycle billing isn't entirely a thing of the past."

A big change in the Credit CARD Act is the elimination of double-cycle billing. This is a formula that computes interest charges based on the two previous billing cycles -- effectively penalizing consumers who go from paying off their balance in the first month to carrying a balance in the second.

However, if your card doesn't have a grace period -- the period in which an issuer allows a cardholder to avoid paying interest on charges by paying off the balance in full -- you still could be exposed. "The provisions against double-cycle billing apply when a credit card has a grace period, so if a credit card doesn't have (one), the rules don't apply," says Wu. For cards without a grace period, some credit card companies refund the interest if a consumer pays the balance off in full each month.

8. "We're accepted around the globe, but beware of our rates."

By now, plastic has all but replaced the traveler's check as the preferred way to make purchases abroad. But beware of the charges that accompany these transactions.

At issue is the foreign transaction fee, a charge for converting a currency into U.S. dollars. Currently, Visa and MasterCard charge a foreign transaction fee of 1% for any purchases, and most banks that issue these cards add a second fee. For example, Bank of America charges 2%; when combined with the Visa or MasterCard fee, card users end up with a fee of 3%. Foreign transaction fees are often this high, says Gerri Detweiler, a personal finance advisor at Credit.com and author of "The Ultimate Credit Handbook."

Consumers who purchase items from an online vendor based abroad are also typically charged a foreign transaction fees.

9. "Late fees are still with us."

With the Credit CARD Act, consumers should be aware of the new changes to the time their payments are due. Prior to the new rules, many banks were setting deadlines as early as 9 a.m. or as late as 2 p.m. on the payment due date. Payments are now considered on time when received by 5 p.m. on the due date. And if the due date is on a weekend or federal holiday (when payments aren't processed), the credit card issuer must consider your payment on time if it arrives on the next business day.

"This change gives you a better shot at getting your payments in on time," says Detweiler. For consumers who are late with their payments, though, issuers can still charge a late fee, which they aren't as quick to refund anymore, she says. Such fees run as high as $39 and they're not proportional to the amount owed. So a consumer who is late making a $20 payment can incur a late fee nearly twice that, she says. The Federal Reserve has a announced a proposal that includes changing the way late fees are assessed, but it remains under consideration.

10. "Go ahead and exceed your credit limit -- we like that."

With the new credit card rules, consumers have two options: Consent to be charged an over-the-limit fee or refuse to opt in and risk being denied if they try to exceed a card's limit.

You can be charged a fee of around $30 to $35 each month you're over the limit (or more if you exceed the limit with another transaction in a subsequent month), says Wu. The Fed has proposed rules to limit the amount of the "opt in" fee.

Wu says consumers have reported that credit card issuers are trying to persuade people to opt in by offering the incentive of a lower fee and implying that by opting in they'll have extra protection in case they need to use their credit card. "It's a way for credit card companies to make more money off fees, and we recommend not opting in because it will more likely hurt you," she says.

Garuccio of the ABA says he hasn't heard of credit card issuers doing this.

This article was updated and adapted from the book "1,001 Things They Won't Tell You: An Insider's Guide to Spending, Saving, and Living Wisely," by Jonathan Dahl and the editors of SmartMoney with additional reporting by Nancy Nall Deminger.

Updated March 23, 2010