Credit Card Loopholes To Be Aware Of

Posted on January 23, 2012 by Max

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Savvy credit card seekers, when they are figuring out which card to apply for, know to look at the fine print.  Hidden advantages like online shopping discounts, purchase protection, and fraud protection can often make one card seem better than another, even if the two cards have similar interest rates and rewards programs.  There is a problem with looking at the fine print, however.  Many people don’t know what exactly they are looking for, and they are unaware of the loopholes and wordplay that credit card companies use to make features seem better than they are.  This can lead to some nasty surprises later on when the user realizes too late that a feature that they were counting on doesn’t actually exist.

Here are some things to watch out for.

1. The advertised interest rate is almost never guaranteed.  This could mean a number of things.  For one, low or 0% introductory interest rates might not last as long as advertised.  The fully-quoted time may only be available to people with absolutely stellar credit.  For the rest of us, a much shorter intro period (or no intro period) is a distinct possibility.  Most credit cards have variable interest rates, which means that credit card companies can change the APR if the interest rates on the market change or if the customer misses payments or does something else to negatively affect their credit score.  So that 9% or 11% interest rate could easily become 19% or 24%, and the credit card company will need to provide little or no explanation.

2. Another interest-related loophole lies with rarer, but still available, fixed-rate credit cards. These cards have rates that are actually not totally “fixed.”  Rather, the company only has to provide a certain amount of advanced notice that they are changing the rates (sometimes as little as a week or ten days before a rate change) .  This might give you time to apply for a new card and transfer a balance, but the fees for transferring the balance can put some hurt in your wallet and your financial plans.  And, then, of course, there is the hassle of changing your credit card.

3. A card with no liability and fraud protection features might seem great, but it really does very little to protect you. New credit card laws already provide plenty of protection against fraudulent purchases and stolen cards.  If you report your card stolen or lost as soon as you become aware of it, you are only liable for $50 in fraudulent charges under US law.  So the most that you’ll lose is $50.  This is especially interesting since some card companies have additional protection packages that they actually charge a monthly fee for.  Obviously, any extra monthly fees are not worthwhile, but a fee for something that you are already protected from by the law is completely unnecessary.

4. Some credit cards seem to offer generous rewards.  However, reading the fine print may lead to you finding out that the deal is not quite as awesome as it seems.  Some rewards programs may give you 5 “points” per dollar spent.  Any card user with basic math skills would reasonably expect $100 dollars worth of rewards when they cash in 10,000 points.  However, to collect the full $100, the user may have to accept a gift card from a certain retailer that is valued at $100.  Getting cash or statement credits instead of the gift card will lead to much smaller rewards.  The best rewards cards will not have a tiered rewards system and will allow you to spend airlines miles or points anytime without incurring a penalty.  And the best cash-back rewards cards will give you statement credits for the full amount of your rewards and not force you to choose a gift card or some other type of non-cash reward.  Reading the rewards program fine print carefully can alert would-be card-holders about such sucker traps.

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