Ways Credit Card Companies Separate You From YOUR Money
January 4th, 2008 by Ana
Today is the “official” kickoff to the Great Credit Card Debate between myself and Madison from My Dollar Plan even though we both fired some opening shots yesterday. Madison tells me she is working on “25 Reasons to Love Credit Cards” and I have to say I am surprised she came up with that many. Then again, she is a self-confessed credit card junkie… with 89 (!!!) credit cards. No, that’s not a typo, but it is a little over 3 credit cards per reason.
So I will start off the debate on this side by listing all my reasons I hate credit cards…well actually credit card companies. The credit cards themselves are just rectangles of plastic with a magnetic strip. It’s the credit card companies that are out to separate you from your money! And here are the ways they do it:
- The “Move the Due Date” Game: I’ve mentioned this one before because American Express tried to catch me with it over the summer. Long story short - they mailed the statement out at the same time every month, but each month moved the due date forward by two days. This shortened the amount of time we had to get the check in the mail (either by writing it out or via billpay) and have it received and processed by them before the cutoff. Another variation of this trips people up when they switch from paper billing to online billing, as Lynnae from BeingFrugal.net posted yesterday. If you read through the comments on her post, a common theme emerges: “That happened to me!” as reader after reader recounts their story and it isn’t just Citibank or American Express who do it.
- Double-Cycle Interest Billing: Here’s another one that American Express so kindly introduced me to! (Can y’all tell I really don’t like them too well?) This is where they go back TWO months on the balance to figure up interest owed…per month! So that means every single month you have a balance, you get charged TWICE for interest on it. It also means that when you go to pay them off, the balance rises up again like a zombie from one of the “Living Dead” movies.
- Rate-Jacking They can jack your interest rate up at any time and for any reason. Really…they can! Read the fine print on your credit card user agreement. It could something as ridiculous as the manager saw a black cat cross his path on the way into work and decided to raise every cardholder’s interest rate. I’ll have to dig for a link, but I believe Capital One did this over the summer, sending out a letter to all cardholders saying interest rates were being raised but they had to call in to opt out of the rate increase.
- Bait-and-Switch My mom was just complaining about this one over the summer. She signed up for a new credit card at 0% interest…and they sent her one with 8.9% interest. Mom was pretty steamed, and said she would call them up and actually give them another chance to change it to 0% and if they didn’t she would close the account without ever using it.
- Universal Default This one is the most insidious…when you sign up for a credit card, you give the credit card company permission to pull your credit report…and if they see ANYTHING on it that they don’t like, they can raise your interest rate up to the maximum! I’ve heard of maximum rates being as high as 32.99% or even 35.99%! And the kicker is: the information on your credit report might be inaccurate, but the interest rate will stick until you can clear it up with all three credit bureaus.
- Making “Mistakes” Madison herself has experience with this. Yes, she got it fixed…but it took time and hassle. Credit card customer “service” representatives are not known for their ability to get things fixed in a quick manner, nor are they known for being effective with these fixes. Ask Lynnae about that one. And I have the word mistakes in quotes because sometimes these oopses just seem too convenient, and if the customer isn’t watching the billing statement like a hawk then they go uncorrected. Don’t you ever wonder how much money these credit card companies make on their “mistakes”?
Most of the reasons Madison lists for loving credit cards, I can acheive with a debit card…and I don’t have to be constantly vigiliant about dealing with the credit card companies. Dave Ramsey compares the credit card companies to snakes, which I think is a little unfair to my innocuous little ball pythons. I instead liken them to “hot” (venomous) snakes: credit card companies are harmful to the consumer by nature, and can be extremely dangerous even to people who know what they are doing! If I can’t convince Madison to give up her credit cards (and I sincerely doubt I will) I can at least inform her (and everyone else) of the financial hazards involved with handling them.
More to follow as the “Great Credit Card Debate” heats up…
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January 4th, 2008 at 9:39 am
Wow, #1 is really evil.
January 4th, 2008 at 9:57 am
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January 4th, 2008 at 10:19 am
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January 4th, 2008 at 11:10 am
My god. I’ve never heard of/realized #1 was happening. That’s insane. And, here we are, trying to be good people and play their game… (sigh)
shauna
January 4th, 2008 at 12:10 pm
I recently had an encounter with #2 after paying off my debt, i had a balance of $0 but an finacne charge of $23. I was pissed but AmEx CS fixed it for me and told me about the 2month interest cycle. I stopped using AmEx after that.
January 4th, 2008 at 1:30 pm
I used to work at a major bank, and I can tell you - most of those mistakes really are mistakes. Part of the problem is lack of training, part of it is lack of motivation. Having trained CSRs before (because I got sick of fixing their mistakes), I’ve given up on a solution to this problem.
And yes, the bank/credit card company won’t fix the “mistake”, most of the time because it goes unnoticed by them. The times they do notice, it’s because they’re out the money. This is only logical.
But regardless, you *should* be watching your statements (credit cards, banks, loans, bills, etc) like a hawk. No one else is looking out for you!
Also, bait-and-switch isn’t really that, it’s more like failure to read the fine print. The 0% isn’t guaranteed until they pull your credit report and make a decision, and they’re somewhat upfront about this (ie, it’s in the disclaimer, but the responsibility is on you to read it).
My problem with credit card companies isn’t these practices, it’s the way these practices are designed to take advantage of the unsuspecting consumer. But that’s indicative of a bigger problem - lack of financial education. That’s what the cc companies are counting on and preying on.
Oh - double cycle billing is pure evil.
January 4th, 2008 at 1:52 pm
deepali, thank you for clarifying that, because (maybe it’s my paranoia) I have always suspected the “mistakes” weren’t since they seem to *always* benefit them and not me.
And for the record: I consider ALL of these practices to be “evil” but yes #1 really made me mad when they did it to me!
January 4th, 2008 at 2:20 pm
#1 Makes me mad, too. But you knew that already.
January 4th, 2008 at 2:45 pm
Another plus to using cash is you usually can get a discount. The rewards offers for credit cards simply is the credit card company passing some of their profit back, not all of it. You paid that reward offer when you bought the product. Just means we all are paying more for the product to begin with. 5% cash back is the result of the merchant paying 5% or more to visa or the others, as such he marks his products up.
Gas pumps are the worst, they add the cost of credit, its allowed. Their prices are regulated but use of credit is assumed. If they had a cash price, all of us would be paying about 15 cents less per gallon.
I save money often by negotiating a cash price, just ask, bottom line if you give a merchant 100 in cash he keeps it all, you charge 100, he gets 90-97 back.
January 4th, 2008 at 2:49 pm
Having come from $20,000 in CC debt to none recently, I can say that as long as you’re diligent and pay attention, you can game the system before they try to game you. I went for 5 years without paying interest (almost) on all of that debt because I took advantage of the system. Then finally I just had the motivation to pay it all off.
For people carrying balances right now and who can’t pay them off (sometimes we CC debt free people forget people can’t just drop their debt), deepali is right that you just need to watch the info like a hawk. Keep track of your due dates and don’t send out payments to far in advance or too close to the date and you should be fine. Read everything closely as it comes in via mail and email. It’s boring, but it’ll prevent you from whining about “getting screwed” (unless the bank really did make a mistake).
January 4th, 2008 at 4:07 pm
I’m with you, Ana!
Don’t people have better things to do with their time than playing the 0% game with credit card companies? If they would use that time to have their money MAKE money for them rather than sitting in on a zero percent credit card, they’d be so much further ahead.
I’m looking forward to this debate!
January 4th, 2008 at 5:37 pm
I’m definitely on the anti-credit card side now. I am tempted by the rewards programs, but I also don’t want to spend my time watching my credit card every day and being forced to deal with some idiot at the credit card company one day when they inevitably make a mistake and try to steal my money.
January 5th, 2008 at 6:01 am
[…] Madison at My Dollar Plan have a credit card duel going this weekend. Do you agree with Ana that credit card companies try to separate you from your money, or do you agree with Madison’s 25 reasons that she loves her cards? The duel continues […]
January 5th, 2008 at 8:08 am
[…] Ana at Debt Free Revolution and I are debating about using credit cards in 25 Reasons to Love Credit Cards and Ways Credit Card Companies Separate You From Your Money. […]
January 5th, 2008 at 9:01 am
We are in the process of buying a house. Yesterday our mortgage lender pulled credit, and called us because evidently, Citibank has reported that in 12/07 (just last month) they charged off our acct to collections for non payment.
Well, that is a problem because we PAID OUR ACCT in full in August, 4 months earlier.
I called Citi last night and raised cain, and well, they were all sugary sweet to send me a letter admitting their mistake and saying it was not true. But here’s the kicker, they cannot tell me why it happened, and they cannot “fix” it for me on the credit reports.
It is MY job to take the letter from them, and contact ALL the credit bureaus myself and fix it. Time, money (stamps, copies, etc) and all for THEIR mistake.
God, I HATE debt, and I hate CC’s even more. We do not have a CC anymore and I never, ever, ever will do that again!
January 5th, 2008 at 3:29 pm
Eden, resist the “rewards” temptation! It is like a bright shiny fishing lure…only it’s designed to hook consumers. They don’t “give” that stuff away for free. They are profitting from it!
Lindsey, thank you for sharing and validating my point. Sorry to hear it happened, and glad to hear you are free of them now.
January 5th, 2008 at 4:34 pm
Those are definite baddies. Esp #1, but double-cycle is sucky too. I don’t have any, but I don’t hate them but I don’t want them either.
January 6th, 2008 at 8:14 am
[…] Ways Credit Card Companies Separate You From Your Money […]
January 6th, 2008 at 9:07 am
Ana, please add: good luck trying to get your chargeback rights. I had a merchant screw me and tried to dispute the charge and my CC company said they’d do it if the merchant’s CC company agreed to it (like that’s going to happen), and so it never happened, and I’m screwed for over a hundred bucks. I keep that paperwork on file, all the letters and emails and notes about calls and claim forms and correspondence…it took several months and they put me through hell and still said no.
There’s no such thing as purchase protection. It’s an illusion. If you actually try to use your protection, they’ll find some way to weasel out.
The system is stacked against you! Refuse to play their game.
I pile up savings instead of CC bills; I earn interest, I don’t pay it. I travel, including internationally, I rent cars, I shop online, and I don’t need a CC.
Twenty years of debt slavery is enough, I’m done with them.
January 7th, 2008 at 3:34 am
[…] Ana at Debt Free Revolution counters by listing the Ways Credit Card Companies Separate You from Your Money. […]
January 7th, 2008 at 9:49 am
[…] Ways Credit Card Companies Separate You From YOUR Money […]
January 8th, 2008 at 8:12 am
[…] card debate with Ana at Debt Free Revolution this weekend. Here’s two of my favorites: Ways Credit Card Companies Separate You From Your Money and 25 Reasons to Love Credit Cards. The comments are igniting a lot of passion on both sides. Be […]
January 8th, 2008 at 10:07 am
kentuckyliz, just because you had bad experience using purchase protection doesn’t mean others weren’t successful. You cannot generalize from one experience, even several. As they say - “plural of anecdotes isn’t data”.
And yes, sometimes they make mistakes and sometimes there is bad service. Happens with other businesses too - telephone companies, utility companies, merchants.
In terms of the need for financial education, it all comes down to a very simple rule - pay the full amount by the due date or pay a lot of money. My parents understood it immediately, and they couldn’t even speak English properly when they came to the US having spent first 40 years or more of their lives in the Soviet Union. They’ve never made that much money in the US, didn’t have as many years to save money as those who’ve worked all their lives in the US, yet they managed to save enough to retire; maybe not as much as I’d like to have for my retirement (or even have now) but enough to buy a small co-op for cash and live the same modest lifestyle as before. And they used credit cards, just have never carried a balance.
How is it complicated? If refugees from a communist country could figure it out, why can’t so many of those who grew up in the US? Sure blaming evil credit cards is easier than blaming oneself.
In terms of “spending time watching…” - you have to watch all bills be it electric or gas or phone. With debit cards you also need to check there are no unathorized withdrawals. Credit card bill is just another bill, much like a telephone bill. Get a bill, check that charges are correct, look at due date printed on the bill, sign the check for the full amount and mail a payment. Better yet, sign up for automatic payment with the company to just take the full amount from you bank account. Hardly a rocket science.
It’s perfectly valid choice not to use credit cards, especially if you have a tendency to buy more stuff than you would otherwise. But I don’t like this American victim mentality; as well as claim that all of us who use credit cards are all in denial or need to be taught. Even if we are a lot older, have plenty of years of experience of using credit cards, and probably also a whole lot more money saved than those who claim to teach us.
January 8th, 2008 at 9:12 pm
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January 8th, 2008 at 10:12 pm
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January 17th, 2008 at 10:08 am
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January 17th, 2008 at 5:51 pm
Amazing, I had no idea about anything other than the universal default.
I use credit cards only, no cash, but I’ve never paid a late fee, interest, etc. I only use reward cards as well. I’ve never had a problem.
Because I have a budget I track all expenses and reconcile it weekly or daily with the CC statement online. And it’s paid the day it closes. So it doesn’t matter what the due date is.
So I’ve never seen stuff like this. Interesting.
Pretty much my credit card is treated like a checkbook. If I can’t pay for it then I don’t buy it. But it’s an old school way of thinking. My mom said it’s money out of the checking so I had to growing up list all CC charges against my checking account so I’d never go over.
February 8th, 2008 at 10:14 am
[…] the Great Credit Card Debate I mentioned “rate-jacking” as one of the evil little ways credit card companies seperate you from your money. With all of the Congressional attention one would think they might have laid low for a while […]
March 19th, 2008 at 4:06 pm
My blog, How To Get Good Credit Gab, provides the opportunity to share thoughts, ideas and experiences about obtaining good credit and emphasizes the importance of building and maintaining good credit and the perils of personal financial mismanagement.
Please consider adding this video you your site:
http://www.youtube.com/watch?v=2fi0okku_X4
[Ana’s note: I’ll leave this link in as an “opposing editorial” type thing]
March 27th, 2008 at 12:07 pm
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March 31st, 2008 at 11:33 am
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