Credit Card Advice

[MMock]

I always pay my credit card balance when it's due. Or I mean to. What happened in July is when my statement came I sat down and reconciled all my charges with my receipts, then promptly filed everything away without tearing off the payment stub and sending it in. Oops.

I realized 10 days after it was due, so of course I had finance charges. It was about $50. So in August I paid the balance and the $50 and the late fee (which they credited when I called and told them what happened). Then September's bill comes and they want another $24.88 in finance charges. I don't understand their calculations - if I paid the balance why is there a charge? I didn't get a clear answer last night when I called them, just that it wasn't a mistake.

So now I want to pay it and say good riddance to that bank and find a new one. I know they're all the same, but it's the principle - I've been a good customer for years and they're being an SOB.

So, are there any out there you recommend?

[rjv_rnjn]

You are just getting into their good books and thinking of giving up.

[mendhak]

That's how they fleece you. Even if it's a matter of principle, you're going to get another CC (not chit chat) and they'll have the same rules, because that's how they make money. It's partly your fault too, isn't it - you did forget. If you pay on time and the terms are good for you, you should stay.

Now cue the recommendations...

[EntityX]

I use a VISA debit card with a daily spending limit on it. That way I never create debt. You can make purchases conveniently because it's just like a credit card and you'll only spend what you already have. You could find out if the bank you use for your checking account provides debit cards of any kind. When you use the debit card the money would come straight out of you checking account.

[stanav]

Sign up for an online account. Then set up email notifications on payment due dates, account balance exceeding threshold, large charges... That will certainly help you save a stamp each month (by making payment online) besides reminding/notifying you of any unusual account activities.

[SambaNeko]

I use a VISA debit card with a daily spending limit on it. That way I never create debt.

This is not a good idea in the long run - I followed a similar mindset, put off getting an actual credit card, and now I am paying for it because while I have good credit history, I have very limited credit history, and in some situations you will need both. Start building positive, responsible credit history as soon as you can.

[EntityX]

It depends upon your situation. I don't have any need for credit so I don't need any kind of credit rating. Everything I own is paid for. House, etc. But if you are concerned about building a credit rating then maybe you should use a credit card. If you want to get a loan for a home or car or whatever then you have to be concerned about that but if you don't plan on taking out loans then it's a different situation. I haven't used a credit card since 1999 and I don't miss it at all. My debit card makes purchasing just as convenient as using a credit card.

[stanav]

It depends upon your situation. I don't have any need for credit so I don't need any kind of credit rating. Everything I own is paid for. House, etc. But if you are concerned about building a credit rating then maybe you should use a credit card. If you want to get a loan for a home or car or whatever then you have to be concerned about that but if you don't plan on taking out loans then it's a different situation. I haven't used a credit card since 1999 and I don't miss it at all. My debit card makes purchasing just as convenient as using a credit card.

A lot of credit cards give cash backs, and some times it's up to 5% of the purchase. Besides that obvious savings, they also normally covers car rental insurance and many other benifits which don't cost you any extra $... You don't get any of that with a debit card, do you?
So it's still better to use a credit card and payoff the balance on time each month then to use a debit card.

[Bonker Gudd]

You could always save money and not need credit.

[DeanMc]

I got into a rather large hole (about 15k deep) because of credit cards. I started well always paid on time, kept records. But then some changes happened to my lifestyle which meant I hadn't as much money as I used too. I very quickly could not afford what I once could and as soon as my financial balance tipped the wrong way my 3 CC's ran up fast, VERY FAST.

Long story short I finally fixed it, paid the companies off (Which where surprisingly helpful) and vowed to never use a CC again. I now only spend what I earn minus regular outgoings plus savings. It's been pretty hard to get back on the straight and narrow but I recommend not having a CC as there is no good reason to especially with Visa Debit which my bank now offers meaning I can still pay for goods and services online.

[EntityX]

If you were going to use a credit card I would see if you could set it up so that there was an automatic debit each month. That way you would never be late and have to pay the late fee and you would know that you shouldn't spend more than you have in your bank account. All my recurring monthly fees like electricity, water, phone and internet are set up as auto debits so I never have to worry about missing a payment. I purchase very little with my VISA debit card so getting 5 % cash back would make little difference for me but if you really spend a lot using your credit card then I could see why some people would be attracted to getting cash back. Seems surprising that the credit card companies would enable themselves to lose money. If you get cash back and always pay your balance off it seems like they would lose money.

[MMock]

If you get cash back and always pay your balance off it seems like they would lose money.

Right - but I think "you" is such a small percentage of CC's customers that they hardly lose money!

Debit might work for me as I'm old enough that I have good credit history going way back, and my husband and I just built a house and that transaction went fine (though it'd be nice if we could sell the old one which still has a mortgage on it - I know what you mean DeanMc about your expenses eventually catching up to your income!)

I got taken once by an automatic checking account deduction of health insurance - I bought new insurance and either I forgot or my financial advisor failed to "advise" me correctly and the first insurance wasn't cancelled on time and just went ahead and kept deducting! That sucked. They're not like car insurance companies, which seems very flexible either way (if you're doubly insured or didn't to make a payment they seem to refund you when it's the former or still insure you when it's the latter).

[FunkyDexter]

If you get cash back and always pay your balance off it seems like they would lose money.

Lots of people think this but it's not true. Credit Card Companies actually make their money from fees charged to the vendor rather than you as a consumer. In fact, if you pay off every month your their ideal customer.

Banks (which, of course, own the credit card companies) are only allowed to lend up to a fixed multiple of their total deposits. If you save lots of money with a bank they love you because you increase the amount they can lend. If you borrow in a controlled way (paying in full every month) they love you because you count as an extra customer (making them more attractive to vendors) but do not impact heavily on their ability to lend to other customers. The only typf of customer banks really don't like is the kind that runs up huge debt they can't pay - this kind of customer is really the only risk a bank faces.

[stanav]

All my recurring monthly fees like electricity, water, phone and internet are set up as auto debits so I never have to worry about missing a payment...

I do this too, but instead of directly debit from my bank account, I use my credit card for auto payment whenever possible (some won't take credit card though, such as mortgage payments...), and I get cash back or points on those payments just like any other purchases.

[Blakk_Majik]

If you borrow in a controlled way (paying in full every month) they love you because you count as an extra customer (making them more attractive to vendors) but do not impact heavily on their ability to lend to other customers.

This is false.

The perfect kind of credit card customer is one that will miss a payment every now and then, keep a balance, but make enough payments to avoid default.

This allows them to:
1. Raise your interest rate (companies in America are now doing this to good customers thanks to the pointless law changes our wonderful CONgress came up with)
2. Charge you fees. If you have 10 million customers, and 1 million have to pay a $39 late fee, that's quite a chunk of change there. They also earn millions in finance charges every year from customers that carry balances of thousands of dollars every month. Then, you have the lovely "over the limit fees" which they can charge. Also, when you go over the limit, they can raise your interest rate.

I mean, where do you think the MINIMUM payment came from? This is what they WANT you to pay, as it represents the perfect profit point for them. They NEVER, EVER want you to pay it in full, because they cannot charge interest on you.

[NeedSomeAnswers]

I agree with Black_Majik,

when i got my first credit card the personal banker in the bank even told me that the way to get on a better interest rate is to spend on your card and pay off the balance over time so that they can charge you interest and make extra cash off you.

Credit card companies love customers that have a large debt that they are servicing (as in paying off more then the minimum amount but not anywhere near enough to clear you balance.

If you owe for instance 5000 and you pay that back over 5 years then they will make a fortune of you in interest payments, if you pay it back in 5 weeks then they make virtually nothing off you in interest payments.

It is in the Credit card companies interest that you build up debt with them that you can't quite pay off but can afford to service it, that's there favourite type of customers (them and those that make late payments so they can add on charges)

[MMock]

If you borrow in a controlled way (paying in full every month) they love you

Well if that is true I should call them once more and say I'm leaving unless they waive my finance charge from the 2nd month. We'll see how much they love someone who pays the balance every month and has only been late maybe a total of four times in over 10 years (when I am late, it's always the whole payment because I forgot or got distracted or something - I've never made an on-time payment of less than the balance).

[FunkyDexter]

They don't need you to carry balances or default to change your interests rates, they can do that on a whim if they wish. The only reason they don't is because they don't want to lose your custom to another card.

And the assumption that they make their money from late payment fees is also false. In theory the late payment fee is purely an admin fee and (at least in the UK) cannot be punitive by law. In other words it must reflect the cost to the company of administering the debt and they therefore cannot profit by it. This position was recently upheld by the Office of Fair Trade and our credit card companies and banks are currently refunding late payment fees to any Tom Dick and Harry who threatens them with Court Action because they're scared witless a court case will reveal that the fees they've charged aren't in line with their costs. There is a loop hole in that they're trying to argue that teh late payment fees are a cost for a service provided rather than an admin fee but they know they'll lose that row (again, the Office of Fair Trading has already said it's an admin fee) - another reason they're avoiding court cases.

You are not the customer of a credit card, the vendor who accepts that credit card is their customer. It's the fees they charge to vendors that represent their primary revenue stream and you are simply a means to an end. If you are carrying a card and wanting to pay with it then more vendors will be willing to pay more for the privelege of accepting it. The more people carrying the card the better and, since their level of lending is capped as a multiple of their assets, that means trhey want lots of people with a small debt, not a few people witha large one.

The interest they charge you is used to offset the cost of borrowing and administration. They will make some profit by it but it's insignificant alongside the revenue provided by vendor fees.

Well if that is true I should call them once more and say I'm leaving unless they waive my finance charge from the 2nd month. We'll see how much they love someone who pays the balance every month and has only been late maybe a total of four times in over 10 years (when I am late, it's always the whole payment because I forgot or got distracted or something - I've never made an on-time payment of less than the balance).

If you're in the UK it's almost guarenteed but I'd recommend writing to them rather than phoning. If you phone there's a chance you'll get some pin-head who's having a bad day and just wants to spoil yours (which is probably what happened when you phoned before).

[kleinma]

You are not the customer of a credit card, the vendor who accepts that credit card is their customer.

I would say that the vendor and the consumer are customers of the credit card company.

yes they make money per transaction from the vendor, generally with a small flat rate and a percentage of the charge amount. They also make some money from late fees, but they make tons of money from interest. Paying late, and paying a minimum balance on time are 2 different things.

The penalties they may put on people for late payments and what not may not bring in all the money, and may be regulated more strictly, but when people have $10,000 balances on their credit cards, and are paying $100 bucks a month (on time) because its the minimum payment required, they are generally just paying off interest which returns shortly after.

[Blakk_Majik]

FunkyDude, we are talking about consumers, not merchants.

My point was that banks make a significant amount of money on people that:
A. Are sometimes late on a payment
B. NEVER pay the balance in full
C. Make the minimum payment or just over the minimum payment
D. Always carry a balance

The minimum payment is the amount that will allow you to avoid default, but keep you as a slave to their interest charges. The banks want you to charge up $10k and pay the minimum payment for 10 years. The blood-suckers will make a tidy profit off you. They do not, however, want you charging up that same $10k and paying if off at the end of the month, because they haven't had a chance to bleed you yet.

[si_the_geek]

The credit card company I'm with has a default option of arranging to take the full amount every month, from the bank account you nominate (from any bank). You can opt to change it to the minimum, or nothing (so you need to pay manually).

If it wasn't as good for them as the alternatives, they wouldn't make it the default - they would more than likely hide the possibility.

[EntityX]

The kind of customers that the credit card companies least like is the kind that runs up a debt up to the limit and then later declares bankruptcy and they don't get any of their money back.

[stanav]

The kind of customers that the credit card companies least like is the kind that runs up a debt up to the limit and then later declares bankruptcy and they don't get any of their money back.

Dxnm! I didn't know that I'm in the least liked list of credit card companies.

[DeanMc]

I agree with FunkyD. Being from Ireland we have more or less the same laws as the UK. If anyone here got into CC debt the first think they will do to "help" you is refund most of the late fee's you have been charged.

CC Companies what you paying so much so that because of the recession there have been radio adverts in IE asking customers to call their CC companies and let them help you get out of debt.

Also further proof that he is correct is the backlash to Visa Debit here where merchant's where refusing to take the cards because of a slightly higher merchant charge than laser (our national debit card) Visa had to bow to the pressure and reduce the fee's since merchant's threatened to stop taking Visa credit also!

[visualAd]

I always pay my credit card balance when it's due. Or I mean to. What happened in July is when my statement came I sat down and reconciled all my charges with my receipts, then promptly filed everything away without tearing off the payment stub and sending it in. Oops.

I realized 10 days after it was due, so of course I had finance charges. It was about $50. So in August I paid the balance and the $50 and the late fee (which they credited when I called and told them what happened). Then September's bill comes and they want another $24.88 in finance charges. I don't understand their calculations - if I paid the balance why is there a charge? I didn't get a clear answer last night when I called them, just that it wasn't a mistake.

So now I want to pay it and say good riddance to that bank and find a new one. I know they're all the same, but it's the principle - I've been a good customer for years and they're being an SOB.

So, are there any out there you recommend?

Most credit cards will levy a fee for late payment and charge interest on the entire balance for the term of the loan. This is usually from the day after your previous statement until the next payment date.

This means you will be paying interest on the entire overdue balance for two months. I made a similar mistake once, I paid the balance by got the pence part of the payment the wrong way (i.e. I paid 684.35 instead of 684.53). I have paid on time but the contract stipulated that if full payment was not made you would be charged interest on the entire balance for the term of the "loan". It is, unfortunately how they claim to make their money.

I recommend that you phone them again and explain to them that your non payment was a mistake and request politely for them to reverse any unpaid charges. If they don't budge then ask to speak to a manager or supervisor and lay on a bit of charm; say that you don't want to have to find another CC provider because they have served you so well up until this point. If that doesn't work then you could try writing into them.

Depending on the country you live in, you are most probably bound by the contract, so refusing to pay might not be the best route to take. If you live in the UK you could request the late payment charge back as UK contract law states that any charges in relation to contractual breach must be proportional to the cost of administering the breach. I.e. they need to prove that it cost them that much when you didn't pay.

[NeedSomeAnswers]

And the assumption that they make their money from late payment fees is also false. In theory the late payment fee is purely an admin fee and (at least in the UK) cannot be punitive by law. In other words it must reflect the cost to the company of administering the debt and they therefore cannot profit by it.

Oh come on, late payment charges for credit cards can still be up to £12 each in the UK, do you really think that it costs them £12 to process ?

I have worked at a Building Society before and i can tell you now that it does not cost Building Societies or Banks that much to process a late payment fee on an Account so why would it cost a Credit Card company more ?

The reason that the fee are capped at £12 is that that is what the Office of Fair trading decided was a Fair amount after they investigated. It was difficult for them to prove the exact amount that it cost the Credit Card Companies so they went for a compromise amount based on what they did know.

[visualAd]

I suspect that it falls very much into the category of un-authorised overdraft fees. The banks have made an appeal to the house of lords because a ruling in favour of the consumer could cost them billions in refunds:

http://www.moneymadeclear.fsa.gov.uk...test_case.html

So the assumption that they don't make money from them is totally false.

[FunkyDexter]

I'm not sayngthey make NO money from late fees or custoemr interest. I'm saying it's not their primary source of income (that's the vendor fees) and therefore not the driver for their business strategy.

They don't hate you because you pay off your balance each month because you still allow them to make money despite that. In fact, they prefer it because the risk to reward ratio you represent is far better that that of a customer who builds up and carries a large debt. If you pay your balance off every month they know you're not going to default so you're low risk and you represent an increased potential for them to sell their service to vendors. If, on the other hand, you carry a large debt you represent an increased risk to them. They do make more from you as an individual in interest but you don't affect the total amount they can make in interest from all their consumers because if they lend less to you they can simply lend more to someone else (or to more people) while still remaining within their lending cap.

[visualAd]

It may not be their main source of income but it is most certainly a large proportion of their income. When you consider that many Credit Cards also encourage (or used to encourage) the transfer of balances from other debts to them, there is no doubt that they see the consumer debt market as a source of income.

The best part for the credit card company is that a bad debt is only a bad debt when it cannot be paid by the consumer only then does it show as a loss for the credit card company. If the consumer is making regular payments, their debt is simply considered an asset to credit card company (one that makes money if you include the interest rate). The same is true for mortgages or any other type of loan; in effect the credit card company has made an investment in the consumer.

This is one of the factors that contributed to the mess the world economy is in now because these so called "assets" (mortgages and secured loans) were being sold as investments by banks; as soon as the house prices fell and the consumers behind the loans began to default the assets became almost worthless.

[abhijit]

Every time I think I have understood credit card companies, they surprise me with something new.

[Psyrus]

I'm dumping my credit card shortly. They are increasing my rate from 9% to 17% for no other reason than because they can. I got into a long discussion with one of their supervisors. It seems they review accounts once a month to see who they can screw over next. I only caught it because I scrutinize my bills. Other people had their rates increased and probably didn't notice.

I switched to a Visa check/debit card and couldn't be happier.

[stanav]

I'm dumping my credit card shortly. They are increasing my rate from 9% to 17% for no other reason than because they can. I got into a long discussion with one of their supervisors. It seems they review accounts once a month to see who they can screw over next. I only caught it because I scrutinize my bills. Other people had their rates increased and probably didn't notice.

I switched to a Visa check/debit card and couldn't be happier.

Using a debit card, anything you charge on it will be withdrawn immediately from your bank account... So it's not much different than using a credit card and paying off the balance each month. And If you are paying off your credit card on every billing cycle, the interest rates don't mean anything, because you never have to pay any interest... So I don't see a valid reason for switching to using a debit card just because credit card interest rates are high.

[MMock]

I recommend that you phone them again and explain to them that your non payment was a mistake and request politely for them to reverse any unpaid charges. If they don't budge then ask to speak to a manager or supervisor and lay on a bit of charm; say that you don't want to have to find another CC provider because they have served you so well up until this point. If that doesn't work then you could try writing into them.

When I initially made the phone call I just wanted an explanation because it was a little bit of a shock that I had finance charges a second time. The customer service person I spoke to said "We can get that waived..." which I wouldn't have thought to ask because I didn't think they could. So he got my hopes up! But he transferred me to a supervisor who played the bad guy. He asked me "Can I help you?" so I don't think the first person gave him any info about me. I think that's what ticked me off too.

[kleinma]

Using a debit card, anything you charge on it will be withdrawn immediately from your bank account... So it's not much different than using a credit card and paying off the balance each month. And If you are paying off your credit card on every billing cycle, the interest rates don't mean anything, because you never have to pay any interest... So I don't see a valid reason for switching to using a debit card just because credit card interest rates are high.

I agree, especially if using a debit card will not go against your credit score positively, like using a credit card would.

I only have 2 major credit cards, with 10K total limit between them. I never carry any balance, and my credit score is phenomenal. Probably just based on never having any late fees, and not having too much of a credit limit across all my cards.

[Psyrus]

Using a debit card, anything you charge on it will be withdrawn immediately from your bank account... So it's not much different than using a credit card and paying off the balance each month. And If you are paying off your credit card on every billing cycle, the interest rates don't mean anything, because you never have to pay any interest... So I don't see a valid reason for switching to using a debit card just because credit card interest rates are high.

Credit card companies make money with each purchase. I do not want to give them anything. I'm tired of all of the crap I've had to deal with from them over the years. I am much better off without them.

[soso3]

^ +1

I average about $2000 a year worth of gift cards from all the points I earn using the credit card for all purchases (and paying if off every month). I usually get Lowes/HomeDepot gift cards to use towards typical maintence stuff for the house throughout the year.

[stanav]

Credit card companies make money with each purchase. I do not want to give them anything. I'm tired of all of the crap I've had to deal with from them over the years. I am much better off without them.

Your bank in fact just another credit card company (why do you see the logo "Visa" or "Mastercard" on your bank card?)... When you use your debit card, your bank makes money too. So you're ripped off twice:
1. They use your deposited money to loan to others and making money on that.
2. They make money again on your money when you make a charge on your debit card.

And worst, your bank rips you off twice but doesn't give you back the same benifits you would get if you use a credit card.

[stanav]

^ +1

I average about $2000 a year worth of gift cards from all the points I earn using the credit card for all purchases (and paying if off every month). I usually get Lowes/HomeDepot gift cards to use towards typical maintence stuff for the house throughout the year.

Unless you're buying a large ticket item and paying it over time to take advantage of the no interest "Same As Cash" offer, I don't see any values in using a department store credit card over a major credit card. Most department store credit cards have a rediculously high interest rates and if you make a mistake while taking the 'same as cash' offer, you're doomed. So it's a risk. Having said that, I myself carry about a dozen of various department store credit cards. The only reason why I ever apply for one is to take the big discount on the 1st purchase using the card (normally about 10-20% off the whole purchase). After that, I just use my regular credit card to pay (and get cash back too )

[kleinma]

I flew to Europe for free making my 21 day vacation there affordable, considering the round trip ticket was over $900US

I paid about $43 in taxes, and the rest were points from my credit card usage, transferred at a 1 to 1 ratio to continental OnePass miles.

Besides you don't have to give credit card companies anything. I have not paid 1 dime to my credit card companies other than payments on purchases I made. No late fees, no interest. In return I get a good credit score, and when I went to get a house loan at 23, I had no issues doing so.

The only credit cards I have ever paid over time were promotional store ones that offer long term no interest. I bought a $1600 guitar, and a $2400 HDTV, both with 0 interest 18 month credit cards, and paid them off within about 12 months.