Opening a new account? Read the fine print.
Here's seven common clauses consumers might watch out for when they sign up for a credit card or checking account.
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"[C]redit card lenders need to consider a borrower's total credit picture in evaluating the likelihood of future default," wrote Roger Hochschild, Discover Financial Services' president and CEO, in a statement prepared for a hearing on credit-card company practices held Dec. 4 before the Senate Committee on Homeland Security and Governmental Affairs. "Card members are informed of the manner in which their APRs may change in the card-member agreement they receive at the time the account is opened."Skip to next paragraph
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Some creditors apply the hiked-up interest rate retroactively to money borrowed at a lower rate. Consumers always have the option to close the account, but there are still ways to engage in safer credit practices. Linda Sherry, Consumer Action's director of national priorities, recommends staying below 50 percent of your credit limit to avoid a drop in credit score and an increased interest rate.
Some bank credit cards have eschewed the practice of jacking up interest rates when borrowers pay on time. Citi Cards, for example, announced last March that they would do away with "any time for any reason" rate and fee increases. Instead they'd only increase a customer's interest rate if he was late paying his Citi Card bill. In November, Chase announced that it would stop increasing cardholders' credit-card interest rates when their credit bureau scores declined.
But keeping up to date with credit-card company practices can be a daunting task. Consumer Action (www.consumer-action.org) periodically surveys credit cards and publishes a rundown of their billing practices.
5. Paying late opens fee floodgates.
"Never pay late," says Ms. Sherry. "You pay late, you've broken the contract that they consider to be sacred. You open yourself up to all kinds of bad things – raised rates, fees, etc."
Interest rates can increase, and in some cases, interest may be charged on the portion of your bill you already paid. And then you get hit with fees: late fees and over-the-limit fees can exceed the amount you owe. Keest says some creditors will allow you to avoid over-the-limit fees by calling in advance and asking that the issuer decline any over-the-limit charges.
6. The Constitution gives you the right to a day in court, but you also have the freedom to sign that away.
If you have a credit card, you've almost certainly agreed to settle disputes through arbitration, a private dispute-resolution system. Arbitration clauses are among the most prominent in card holders' agreements. So if your credit-card company determines that you owe them money, be aware that you may not be disputing the case before a judge, but before someone who works for a private group often chosen by the bank.
7. Rules are a moving target.
Many can change anytime, for any reason. "Even though creditors can stipulate the terms, they still insert a clause that says no matter what else is in the contract, we can change the provisions anytime for any reason," says Travis Plunkett, legislative director of the Consumer Federation of America. "[Credit-card agreements] are the single worst piece of consumer disclosure I've seen in 25 years of consumer work."
So keep your eyes peeled for notices and opt out when you can. Even when you can't – sometimes opt outs may involve paying an account off in full – you may be able to negotiate better terms.