A dozen devious credit card cons

By: Fool.co.uk

A recent review of UK credit cards by fool.co.uk has identified no less than a dozen devious measures by banks to ensnare unsuspecting customers. These traps are designed not only to heap misery onto people in debt, but are also devised to ambush sensible card users.

David Kuo, Head of Personal Finance at fool.co.uk , says: “Credit-card companies are increasingly targeting rate tarts and convenience users. In other words, they are picking on sensible customers who always pay their outstanding credit-card debts in full.

“The tactics used include the magically appearing annual membership fees, charges for pseudo-cash products such as credit-card cheques, and hidden catches in balance-transfer deals.

“The best way to combat these offensives is to read any material sent to you by your card provider to ensure that no changes to the terms are made without your knowledge. Changes can happen at any time. I suspect the next move may be the sliding credit line where customers' credit limits are lowered once they reach it.

“Credit-card customers are regularly reminded by banks to take care against fraud. Ironically, the people that consumers need to be protected from most are people they are expected to trust – the card issuers themselves.”

12 credit card tricks customers should look out for:

1. The Five Pound Card Trick

Instead of paying a minimum percentage of a balance each month, some credit cards now set the minimum monthly repayment at the monthly interest, plus premiums for payment protection insurance, plus fees, plus £5. The upshot is that your outstanding debt is whittled away at just £5 a month.

2. Negative Payment Hierarchy Hoax

The least expensive debt is paid off first, meaning that the more expensive ones continue to accrue more debt interest for longer. It is tantamount to trying to run up a down-escalator, which will leave customers out of breath and out of pocket.

3. Balance-Transfer Con

Watch out for lenders that class balance-transfer fees as a purchase on 0% balance-transfer deals. This means the fee will not come under the 0% deal, but will instead be subject to interest at the purchase rate.

4. Too-good-to-be-true Typical APRs

Only the most creditworthy applicants will ever get the lowest advertised interest rates. Although current rules state that two out of three borrowers must be offered the typical APR, this only applies to approved borrowers, not the number of people who apply.

5. Congratulations! We've Upped Your Credit Limit

A credit limit is not a debt target, though it is tempting to see it as such. Consequently, the greater your access to credit, the greater may be the temptation to spend.

6. The Insurance Maze

Insurance comes in various guises, not just the high profile dodgy ones. Steer clear of rip-off Payment Protection Insurance (PPI) and Credit Card Repayment Protection (CCRP).

7. Late-payment Sting

Late payers not only face penalty fees but banks can also rescind any 0% deals you may have signed up to.

8. Monthly Interest-rates Ruse

Don't be fooled by monthly rates: a monthly rate of 1.5% might not sound high, but it compounds up to a whopping 19.6% APR.

9. Annual-fee Manoeuvre

Credit card fees are making a comeback, with fees from £10 to £275.

10. Cash-withdrawals Wheeze

A typical charge is 2.5% of the withdrawal amount and a minimum charge of £2.50. So, if you withdraw a tenner, you'll be charged £2.50, which is equivalent to a 25% charge. Withdrawals also attract interest at even higher than standard rates for purchases.

11. Credit-card Cheques Trap

Cheques sent to you by credit-card companies attract interest at the standard rate for cash withdrawals, plus a handling fee of up to £50. Also, like cash withdrawals, you don't get an interest-free period.

12. Gambling-fee Fleece

Card firms are increasingly cracking down on punters who use their plastic to make online wagers. Previously, card issuers treated these transactions as purchases, but you're likely to find that they're now treated as cash withdrawals.

By Sonia Rehill
soniar@fool.co.uk
http://www.fool.co.uk

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