What You Should Know About Your Credit Card
Executive Summary By Manisha Thakor

Credit cards can be your friends or your foes, depending on how you use them. If used for pure convenience-to keep from having to lug around wads of cash or to keep track of what you spend where-they are your friends. Use them without an understanding of their true potential to create financial shock and awe, and they are a foe like no other. To help you keep your relationship with your plastic a healthy one, here’s a quick check-list of things you should know about your credit card.

1. Having too many credit cards can cause you to become financially obese

The ideal number of credit cards is two-one for primary use and one for a back up. If you have work-related expenses that you get reimbursed for, a third one to help keep the book-keeping straightforward is also ok. More than this, however, is not only unnecessary but also potentially dangerous to your financial health.

2. Your interest rate is not set in stone

Skip the supermarket tabloids and head straight for the fine print on your credit card statements. Huge numbers of credit card companies currently utilize what is called a “universal default clause” (note, Congress is investigating this practice). In plain English what this means is that if you are late on ANY of your bills (not just for that credit card) the company reserves the right to jack up your interest rate to sky-high levels.

When you use your credit card to get cash from an ATM, or use those “free checks” that come in the mail, more often than not you are charged a higher interest rate with no grace period-the interest rate clock starts ticking the minute that money touches your hands.

3. You may have fallen victim to the new card “bait and switch”

This happens when you think you’re getting a brand new card with a low rate, but the card that actually arrives in the mail has a much higher rate. So even after getting your new card, check the interest rate.

4. If you make just the minimum payment, you have effectively DOUBLED your purchase price.

Suppose you have an “average” credit card with an 18% interest rate and a 3% minimum required monthly payment. You charge a $50 pair of jeans to the card, and each month when the bill comes you pay just the minimum. You are feeling virtuous because you are paying your bills on time. Alas, credit cards are not free money.

In today’s credit strapped world, the old advice to call your credit card company and make the case that you are a valued customer and should have your interest rate lowered (or your credit limit raised) is quickly going the way of bell bottoms. A much better solution is to only charge items to your credit card that you can afford to pay off in full at the end of each month.

If you are struggling with credit card debt and are contemplating bankruptcy, you can contact a CREDIBLE credit-counseling agency to better understand your options.

5. Yes, you can complain.

The good news is that if you feel you have been treated unfairly by your credit card company-without cause-you can complain. You have a right under the Fair Credit Billing Act to lodge a formal complaint. Refer to this nifty listing from the Federal Reserve on credit card complaints to see where to go and what to do in this case.
When it comes to knowing your credit cards, the most important thing to remember is that credit cards exist for one and only one reason-to make profits for the credit card companies.

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