Credit Card Penalties

Credit Card Penalties are Expensive and Will Likely Continue to Rise

Late Fees

The main credit card penalty that seems to hit everyone from time to time is the late fee. And since credit card companies make lot of money on these fees, they seem to be always tinkering with them in order to make them kick in more frequently.

One of the lenders' games has been to change the address the payment is to be mailed to periodically, hoping the customers won't notice. For example you live in New York and your check was mailed to a processing center in New Jersey.

Suddenly the processing center is moved to Arizona. You think 3 or 4 days is more than enough time to get the bill paid on time, but now it might actually require 5 to 7 days.

There used to be a time when the banks would cut you a little slack. If your credit card bill was due the 15th and the check arrived the 16th or 17th, nothing would happen. Now, even if your check arrives before the next billing cycle date, the bank will consider it late if it doesn't meet their sometimes arbitrary due date.

And worse than that, banks now will consider a check that arrives on the due date a late payment if it comes in past a certain time, say noon.

Late charges are now about $39 for everyone. If you aren't late too often, a bank will sometimes reverse the charge if you call and ask. It's certainly worth the effort.

Other Credit Card Penalties

Other credit card penalties are those charged for going over your credit limit and for bouncing cash advance checks. Depending on the bank these can be quite high, $75 or more.

Of course if your payment check bounces, you're in for a real treat. First the credit card company will consider your payment late and hit you, at a minimum, with the late fee. They might also throw in a bounced check charge for good measure.

Then your own bank will get into the act and charge you for writing a bad check - all in all, not a pleasant or inexpensive experience.

Two Cycle Billing

Another surprise, although not considered a penalty by the bank, is the two cycle billing trick. If you've been carrying a balance and then pay the entire bill off, you will get yet another bill for unpaid interest.

The bank calculates your interest charges over two billing periods, so when you pay the bill in full, there is still money owing. The only way to get around this is to prepay an extra month's interest, but that really gains you nothing.

Not all banks use this, so find and use the ones that don't. [Try Pulaski Bank for a true consumer-friendly bank.]

The Universal Default Clause

And the worst penalty of all is if the universal default clause is activated. Usually this happens when you are late paying other creditors or go over their credit limit. It can also be invoked when your credit score drops because of excessive use of credit, even if you've never been late with a payment to anybody. Other triggers are not paying utility bills or parking tickets on time.

This usually means you will, from that point on, be charged the penalty interest rate, usually the highest rate the bank charges and commonly around 29.99%.

If this happens call the bank and tell them you're taking your business elsewhere. Sometimes they'll lower the rate. Otherwise start shopping around for a cheaper card and close the other account as quickly as you can.

I am sure there are other esoteric charges the bank can hit you with, but these are the main ones to look out for.

Use Software to Avoid Penalties

One way to avoid a lot of these penalties is to use a financial software program like Microsoft Money or Quicken. With both these programs, you can download your transactions from your creditors, your own checking account and your investment accounts.

You can keep on top of your credit card balance that way. These programs also offer online billing paying, but at a price.

If you're willing to spend a little time, you can sign up for online access for just about all your accounts. You can then visit the website for every credit card company you have an account with to see what your balance is, what charges are pending and also to pay your bill online, all without cost.

Or you can open a linked savings/checking account like that offered by Bank of Internet which offers free checking and online bill paying.

Online bill paying is very helpful in avoiding late fees, because you can schedule the exact date the payment will be made – you can even set up recurring payments to be made automatically. But even with this service, make your payment a day or two before the due date to avoid problems. And it is important to make sure you have enough money in your account to cover these payments.

Lately some credit card companies have started charging a fee for the same day credit of an online payment through their websites. Incidentally, this fee is around $39, the same fee charged for a late payment.

Not all credit cards companies do this yet, but if your's does, make sure your payment is credited to your account a day or two early.

With a little attention to detail, you should be able to avoid credit card penalties permanently.

[New consumer friendly regulations will make the issuers change some of their bad habits, but not until mid 2020. Read this article for more information.]

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