By Effie Zahos,
, March 2010
Miss a payment on your credit card and you’ll find yourself screaming “Can they really do that?” A not-so-quick flick through the terms and conditions and you’ll find the answer: “Yes they can!”
Long-time Money reader Moira was horrified to learn that a missed repayment on her American Express card led to a $1300 reduction on her credit card limit.
“I missed one payment and despite my years of paying my account every month, American Express had done a review and decided to decrease the limit,” she said in an email to Money.
Moira’s real gripe is that she was not given any prior warning or notice. While she may question whether or not this is fair, conditions attached to American Express cards clearly state that they “may reduce your credit card limit at any time without giving you prior notice, but will advise you of this”.
According to American Express, regular reviews are conducted on credit card limits, based on a number of factors of which repayment history is one.
Had Moira been late with the minimum repayment on her Amex card just three times in 12 months, she would have also discovered that her ongoing interest rate had taken a massive jump.
As Amex says: “The card member’s interest rate would be increased but would be reduced back to the original rate after 12 months of good repayment history.”
While a majority of cardholders meet their minimum monthly repayments, it’s important to run through the conditions of your card, whether it is Amex, Visa or MasterCard.
The big banks may have buckled to customer dissatisfaction about penalty fees and account keeping fees, but there
are still plenty of unreasonable fees attached to credit cards, not to mention some unforgiving ways card issuers calculate and charge interest.
Expect to pay up to $60 if you are late in making a minimum repayment. You could also be slugged with an over-the-limit fee of up to $40. Then there’s how some credit card issuers calculate and charge interest. With so much focus on interest rates and fees many cardholders, especially those who pay late, would benefit from looking at how interest is calculated.
Essentially you could have two cards with exactly the same interest rate and use them in the same way, yet have one charging more interest if you pay late.
Cards to avoid are those that charge retrospective daily interest on all transactions backdated for up to 55 days if you’re just one day late paying your bill. Or those that fail to give credit for part repayments, even if most of the bill has been repaid.
This was a lesson even for Money’s own editor-in-chief, Pam Walkley. Having mistakenly underpaid her credit card bill by just 40c, her next statement revealed an interest charge of $104.29.
She was quick to point out to her credit card issuer the absurdity of such a charge and the money was rebated.
When it comes to managing credit cards, Canstar Cannex’s credit card analyst Peter Arnold has three golden rules.
“First never use a balance transfer card for new purchases, and beware the revert rate. If you don’t pay off your balance transfer debt within the promotional period, some card issuers charge the cash advance rate – 19.99%pa is quite normal.
“If you don’t pay your card off in full every month, forget about ‘free days’ and go on a rate hunt. Aim for under 12%.
And finally, set up a reminder for your minimum monthly repayment. If you are paid monthly, speak to your provider about aligning your credit card and pay cycles.”
It’s sound advice as missing one payment can have major consequences.
Beware also a condition which allows a card issuer to cancel your card or demand full payment of all sums outstanding if you default. A default could simply mean you don’t pay an amount when it is due. It’s all in black and white, buried in the fine print.
Money Magazine's February 2010 issue is out now. Subscribe now.
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