CREDIT CENTER: Industry Secrets

Card Tricks

Don't fall for credit issuer's sleights of hand. You gotta know when to hold 'em, and know when to fold 'em.

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By Dayana Yochim

Surprise! Some lenders don't have your best interests at heart. Fools have told us about some of the awful offers lenders have sent out as lure. Even the most reputable credit card issuers bombard customers with "perks" that are designed to pad fees and interest payments. (Cash advances and convenience checks don't come cheap.)

You can ignore those carrots -- and we suggest that you do by following the Fool's Rules for Managing Credit.

But in their pursuit of profit, some credit card companies resort to some rather underhanded practices. The fact that many of the most blatant offenders operate out of South Dakota and Delaware is no coincidence. Those states have more relaxed consumer protection laws and let banks raise interest rates and fees to levels that are illegal elsewhere.

If you are shopping for a new credit card -- or just want to see how yours stacks up -- be sure to read the dos and don'ts outlined for all types of cards in "Finding The One." To cover the rest of your bases, read on and watch out for these card tricks:

Tricky teaser rates: Like a cotton candy buzz, teaser rates don't last. But they are darn tempting, especially if you are looking to transfer an existing balance from one credit card to one that offers a lower interest rate. This can be a great strategy to pay down your debt faster -- but it's one that you need to use with care.

Creditors are now making it more difficult to continuously transfer balances from one low-interest-rate card to another. If you toss cards aside like Wet Naps after a rack of barbecued ribs, you may find yourself subject to a steep penalty.

Here's a scary scenario: An offer for an eye-poppingly low-rate card arrives in your mailbox. You jump at the chance to transfer a heap of money you owe on a high-interest card to the new one. After six months, the interest rate on your new card jumps to post-promotional levels -- usually in the high teens or low twenties. But you've already got another low-interest lender lined up. You transfer your balance, and, boom, the dumped card charges you retroactively the higher rate because you didn't read the microscopic print, which points out that you cannot transfer a balance for an entire year.

Before you sign up for a card with a low, low interest rate, find out what that rate applies to. New purchases? Cash advances? Balance transfers? Watch out for cards that force you to pay a higher rate retroactively or charge you a penalty fee if you cancel the card. And try to find a teaser rate that lasts at least six months. For more on finding the best offer, see "Finding The One."

Pursuing the uncredit-worthy: Creditors often prey on those who are least credit-worthy by scanning credit records for telltale signs. If you are a student with no income or have recently emerged from bankruptcy, credit card solicitors would like to talk to you. They know that the recently bankrupt can't declare bankruptcy for another six years and that Junior probably doesn't know the first thing about budgeting.

The magically appearing annual fee: You signed up for a card with no annual fee. Then, blammo! Out of the blue you find one. Some lenders start charging an annual fee to their customers who pay their bill off every month. The best recourse: Cancel the card.

A sliding credit line: Another abhorrent practice is to entice a customer to use a cash advance check or a skip-a-month payment offer and then lower their credit limit. The maxed-out customer is then charged an additional fee for being above it. A variation on this theme is to simply lower the customer's credit limit once they reach it.

Mysterious fees: You may not have to pay a finance charge to get a cash advance. But most banks charge hefty transaction fees, which can be around 2% of the total amount and no less than $10. Also watch out for transaction fees for calling the toll-free number to check your balance and penalty fees for accoun inactivity. (Don't forget about that credit card buried in your sock drawer.)

The disappearing grace period: Watch out for lenders who pull the grace period out from under you -- especially if you are a "freeloader," someone who pays their balance in full every month. Remember, if your grace period is eliminated, you'll accrue interest from the day you make a purchase. The only way to avoid a finance charge would be to pay your bill before you receive it.

The best way to combat any of these offensive attacks is to immediately call your lender on it -- literally. Call the toll-free number on the back of your card and ask to have the fee refunded, grace period re-instated, or credit line re-extended.

If they won't budge, first ask yourself if there's a good reason for the fee. ('Fess up -- at least to yourself -- if you were late with a payment or if you abused your line of credit in any way.) Then cancel your card and inform the customer service rep exactly why you are ditching it. Then head over to the Credit Card discussion board and warn other Fools.