Halloween Scary Story: Creepy Credit Tricks

Wanna see something really scary? Open your credit card statement.

It's not worms, rotten eyeballs, or severed fingers in there. It's worse. Here's what lurks within.

Killer fees: Americans spent $24 billion on credit card fees last year -- more than they did on milk and eggs, according to Cardtrak.com. Of that amount, $15 billion was from penalty fees. Why the big bill? Once a few lenders got wind of what they could charge for penalty fees, others began swarming. Consumer Reports says that credit card companies have experienced a 150% increase in penalty-fee income since 1998. That stings.

Monster-sized interest rates: It's not enough that lenders rake in more than $80 billion in interest from consumers who carry balances on their cards. One little slipup, and your bank's out for blood. Penalty interest rates -- what you get slapped with after breaking any of the rules -- among the top 10 credit card issuers range from the low 20% to just over 30%. And that's from the likes of MBNA (NYSE: KRB  ) , Capital One (NYSE: COF  ) , and Citigroup (NYSE: C  ) . Hit the tripwire with a lesser-established lender, and you could be staring down a hulking rate of 41%, easy.

Bomb-making materials: The average household with at least one credit card has six bank credit cards, 8.3 retail credit cards, and 2.4 debit cards, for a total of 16.7 cards. All of that credit has to be tempting. But a new study reveals that cash-strapped low- and middle-income households that carry credit card debt aren't buried by too many mall purchases, but rather by basic living expenses. The lure of "cheap" money and the pressure of daily bills is a poisonous concoction.

Debt rising from the dead: Got any ghosts of unpaid bills past? Lenders just love to clear the cobwebs from charged-off accounts and sell old, unpaid debts to collection companies. These so-called "zombie debts" spawn calls from collection companies demanding payment from formerly flatlining debts. Before you admit to anything, check your records (you can order your credit report for free) and face the beast (the original lender) yourself so you can stop the zombie debt from stalking you throughout eternity.

A house of mirrors: If it seems as though a million eyes are watching your every move, it's because they are. All eyes are on your APR. Remember that doctor's bill your insurance company dragged its feet paying? Recall the car loan you co-signed so your college kid would come home and visit more? It's all coming back to haunt you. You'll know that you're being haunted when your current lenders start instituting the universal default clause. That's a legalese way of saying that a bank has the right to raise a customer's interest rate if that customer fouls up with another company. Such foul-ups make the credit reporting rounds faster than a rumor at an all-girls' high school. Spooky, eh?

Identity goblins: You might think that there are identity thieves lurking around every corner. But it turns out that it's the guys in suits who are more likely to open the door for foul play. Data warehouse ChoicePoint (NYSE: CPS  ) , consumer information seller LexisNexis, and even employer Time Warner (NYSE: TWX  ) have all let their guard down and lost sensitive customer data. Watch your back. And watch your credit report for these seven signs of demonic identity possession.

Mortgage marauding: When the Federal Reserve Board looked at the credit files of 300,000 consumers, it noticed something frightening: Lenders withheld credit limits on 46% of consumer credit files. Missing credit limits can affect the interest rates you get when you need to borrow money. That can mean big bucks on big loans like mortgages. Why are they keeping mum? To keep competitors from poaching good customers.

Frightfully bad English: It appears that most vampires prefer to practice on the other side of the pond. Borrowers across the Atlantic can get socked with screaming-high interest rates if they're not careful. If you're British and you've got a few black marks on your credit record, you may be able to qualify only for a credit card that charges -- please have a seat -- 70% in interest on unpaid balances. Talk about draining every last drop from your checking account.

Time Warner is aMotley Fool Stock Advisorrecommendation.

Dayana Yochim and her demon dog, Poe, own none of the companies mentioned in this article.


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