When you get that credit card solicitation in the mail that guarantees an extremely low APR, make sure that you read the fine print. Your low interest can instantly increase to an extremely higher rate by simply missing one payment. A lot of people take out credit cards without properly reading the terms of service. Reading the terms of service can help you avoid paying a lot of money in fees.
The following scenario is repeated daily throughout the country. You finally decide to fill out that credit card offer that you received in the mail a few weeks ago. The card is great. It includes rewards on purchases, a low balance transfer fee, and best of all, it boasts an extremely low APR; the lowest you have ever seen. Everything goes well with your new card until the day you miss a payment. All of the sudden the card isn’t so perky anymore. You suddenly lose your low APR. What was once 10% suddenly jumps to 24%. You ask yourself how such a thing could have occurred.
The Default Clause
The default clause allows the credit card companies to raise your interest rate if you ever miss a payment. A lot people simply look at the conspicuous 10% APR lettering on the envelope and simply apply based on that. In order to avoid paying higher interest fees, you must be aware of the defaulting rules. The credit card companies are not lenient when it comes to breaking agreements. They will quickly apply the higher rates as soon as you miss a payment. That is how they make their money. They offer you low rates, in hopes of you making late payments that way your rates increase.
The Universal Default Clause
With the universal default clause, you simply have to be late on any credit card payment and your rate automatically increases. If you’ve been making timely payments with your low APR card and unknowingly forget to make a payment on your sears card, your low APR card’s APR can increase because of the universal default clause.
How does the credit card company know that you’ve missed a payment on another card? They simply look at your credit report. If they see you’ve made any late payments on your credit accounts, they automatically increase your rate.
This means that you must pay all of your credit cards on time in order to avoid higher fees. Missing a payment on any credit card will increase your rates.
Tips and Tricks
1. Apply for a credit card that does not have a universal default clause. If you can’t find a card without a universal default clause, find one that has a lower default clause.
2. Pay your bills on time every month. Having your rates increase simply because your payment arrived late is very foolish. If your bank offers online banking, sign up and take advantage of the speedy service.
3. Don’t exceed your credit limit. Try to maintain low balances on your credit cards. In general, try not to exceed 50% of your available credit. The lower the balance on your credit cards, the easier it will be for you to make monthly payments.
4. Take the time to review your credit report. Visit www.annualcreditreport.com and apply for your free credit report. You are entitled to 3 reports every year. Order one every 4 months and check it for accuracy.
If you read the fine prints on your credit card, you will avoid getting into situations that will make you pay higher interest rates. Make sure you review every credit card offer before you send in the applications.