Think you know your plastic? There are a few things those unassuming little cards in your wallet are not telling you.
Read these three important facts to make sure you are a credit card-savvy consumer.
1. You give away your rights to filing a lawsuit when you apply.
When you apply for a credit card, you are agreeing to the issuer’s terms. Based on industry standards, they inevitably claim any legal issues that arise must be settled through arbitration.
Essentially, you relinquish your right to file a lawsuit and must instead go through the arbitration process with the credit card company.
According to the Federal Trade Commission, “In arbitration, the parties submit their dispute to an arbitrator – a private third party – rather than to a judge. While arbitration is generally less formal than going to court, the arbitrator’s decision is binding and enforceable in court.”
Consumer advocates view arbitration as much more favorable to the credit card companies since you are signing away your rights to traditional legal proceedings.
2. You were not always allowed to carry a balance.
Up until 1959, when the concept of a revolving balance was introduced, all credit cards were technically charge cards. This meant you had to always pay your balance by the end of the month. Because of this, people were not able to spend more than they could afford.
American Express still has a few charge cards available, but nearly all modern credit cards allow you to carry a balance in exchange for an interest fee. People find themselves owing more than they can pay back.
“This feature made it easier for
people to spend beyond their means.”
3. You are subject to fees, fees and more fees.
Credit card companies are pros at slipping in fees they think consumers will not notice or fight.
For example, some credit cards are advertised as having no annual fee. But if you look at the fine print, you will see it is for the first year only and you will pay an annual fee of as much as $95 each year after that.
Tempted by offers for 0% APR for balance transfers? That does not mean it is free. Most cards have a balance transfer fee of around 3 percent of the transferred amount.
Most credit cards have fees for late payments, cash advances and foreign transactions.
What is the moral of the story? Read the fine print before you apply!
Editorial Note: Opinions expressed here are the author's alone, not those of any bank, credit card issuer, airline or hotel chain, and have not been reviewed, approved or otherwise endorsed by any of these entities.