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Credit Card Changing Conditions 2004-11-27

Posted by clype in Articles of Interest, Money, Statistics.
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“The Devil is in The Detail with Credit Cards” — An article by Alvin Hall

“Deadbeats”, “Revolvers”, and “Surfers” — what do these words mean to you?

I learned new definitions for them this week while doing research after watching an amazing PBS television show, ‘The History of Credit Cards’. Let me tell you what they mean in today’s credit card industry…

‘Deadbeats’ are people who pay off their credit cards in full each month; thus the credit card companies make no interest or other fees off these people’s balances.

Isn’t this redefinition of the word ‘deadbeats’ more than a little ironic, given that it usually refers to people who do not pay back their debts? Could you have ever imagined a time when it would be flattering for someone to call you a deadbeat?

‘Revolvers’ are people who carry outstanding balances on their credit cards from month to month, never paying off the entire amount.

This group, especially those who make only the minimum monthly payment, is the most lucrative for credit card issuers. The company earns interest on ‘revolvers” outstanding balances and charges other fees, such as when a person goes over his or her credit limit or sends in a late payment. Approximately 60 per cent of all card holders fall into this group.

‘Surfers’ (short for ‘rate surfers’) are people who routinely switch from one credit card to the next in order to take advantage of limited-time 0 per cent or low-interest-rate deals. While companies may not make money from ‘surfers’ at first, it is most probably that the ‘surfers’ will make a mistake that will turn them into interest and fee-paying ‘revolvers’.

Actually you don’t even have to make a mistake (such as making a late payment or going over your limit) any more.

As a ‘New York Times’ article (subtitled ‘The Plastic Trap’) accompanying the series reported, you only have to own a credit card that has some of the new provisions being included in the credit card agreement that you sign.

I’ve already written in an earlier column about the universal default clause that’s becoming more and more common in credit cards. This states that if you are late with any payment — on your utility bill or TV licence, for example – and it shows up on your credit report at ‘Experian’ or ‘Equifax’, then the credit card issuer can raise your rate immediately to the percentage specifically stated in the agreement you signed.

I learned from ‘The New York Times’, article that one company inserted a universal default provision that permits it to look as far back as 11 months from your current payment to justify any interest rate increase.

Both revolvers and surfers had better watch out: your past can now come back to haunt you.

If you are taking solace in the fact that you have been with the same credit card issuer for yonks and don’t have one of these “new” credit cards, well think again.

Provisions in most cards permit the issuer to change the terms of the agreement at any time. Notice of the changes is usually included as an insert in your monthly statement. (That’s the way I received mine.) You automatically accept the new term the first time you use the credit card after receiving the notice.

Because almost no-one (except people like me who write about this industry) reads their credit card agreements, most people are using their cards based on good-faith assumptions that may no longer be valid.

Most ‘revolvers’ and ‘surfers’ only become aware of the new provisions and punishments, as the article pointed out, when the amount of their minimum payments triple or quadruple the next month. For people using credit cards to try to make it through a precarious financial situation, such instant increases can be the proverbial straw that breaks the camel’s back.

Other changes in credit card agreements include the elimination of the grace period on all new purchases if you already carry an outstanding balance.

Many ‘revolvers’ think that they get a 25 or 30-day grace period during which no interest accrues on new purchases. Those days are gone. Now you are charged interest on your new purchases from the moment you casually slap them on your cards.

If you are a person who carries balances for many months, those bargains you got on sale may actually cost you close to full retail price by the time you pay off the credit card balance.

There are also additional fees and penalties.

The ability to decrease your credit limit or cancel your credit card without notice if the issuer determines you are an increasing credit risk. The right to apply your monthly payment to your credit card balance with the lowest interest rate (instead of the highest) if, for example you charge purchases and get cash advances (never recommended!) using your credit card. These are just a few of the new provisions that await credit card users.

More and more, it is caveat emptor — a “buyer beware” world. And far too many of us are casually ignoring the fine print of important agreements to our potential detriment.

Take the time to read one of your credit card agreements. Yes, it will be boring. But, if you are a ‘revolver’ or a ‘surfer’, it may stimulate you to change your credit card use, or to be more blunt, your credit card dependency.

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Comments»

1. Irma - 2006-11-03

Alvin, you are right, I never read those terms & condiitons changes because they come in with almost every monthly statement, so they are always changing. I did not know about the grace period change or the universal default clause, so thank you. It seems that the best way is to just get a loan and live within your means.


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