In the eighties and nineties, credit card business became so
lucrative for the lenders that banks started fierce competition
among themselves for the bigger share of the credit card market.
The large portion of the profits made by credit card companies
come from account fees and not the interest of the principal amount
lent to a borrower.
Credit card fees.
Annual fee and monthly maintenance fees.
Banks issuing a credit card sometimes impose an annual
fee, which is reflected in the first billing cycle after you receive
your card, and on or about the same billing cycle every year.
Some lenders have monthly maintenance fees instead of an annual
fee, which are charged to your credit card every month. Credit
cards with monthly fees imposed are usually more expensive to
keep, since just a few dollars a month can easily add up
to well over a hundred annually.
Over limit fee.
The fee charged every month in which your credit card balance
is more than the credit limit. This fee, along with late fees,
has increased drastically over the last 5-10 years and some banks
have them set at $30 or more.
The fee charged to your credit account every month that your minimum
payment is not paid by the due date
Returned check fee.
The fee charged to your credit account if your check is returned
as un payable.
Credit card offers for balance transfers.
Banks make a tremendous amount of money from people
who do not pay their credit card balance in full every month.
Competition for those clients drives them to come up
with new ways of enticing credit card holders to transfer their
balances. They offer low APR (Annual Percentage Rate) or even
0% APR to get you to accept a new credit card. Low interest rates
are offered for a limited time, averaging 6 months, but some offer
a low APR for up to a year. There are, however, many things which
can change that special low rate to a regular credit
card interest rate if you are not careful.
Universal default applied to credit cards.
Universal default is a term which can be found in many credit
card agreements these days, and it is usually mentioned in fine
print buried within long paragraphs. Universal default means that
a credit card company can change the card’s interest rate
to a much higher rate if you fail to pay another creditor, or
if you are simply late on a payment to another account. Even if
score is perfect, one little slip can trigger the universal
default mechanism and most, if not all of your credit cards, will
increase the interest rate automatically.
The logic behind the universal default made it possible for banks
to offer credit cards with “zero interest for life”(0
APR). Statistically, most people will be late or miss a payment
to one creditor sooner or later, and that fact will change the
interest rate to whatever was written in the credit card agreement.
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What triggers the universal default does not necessarily have
to be a credit card or a loan payment. A late utility bill payment,
if shown on your credit report, can be responsible for higher
Benefits of having and using a credit card
Possession of at least one credit card is a big convenience
when it comes to making every day purchases, since you do not
have to carry cash or write a check. Paying with a credit
card protects you against bad products and dishonest merchants,
if the card purchase was made within your home state. Banks offer
many incentives to use their credit cards with the hope that you
will run up a balance, which can not be paid off. And when you
carry a balance on a credit card, the lender makes money. Some
of the typical incentives are earning airline miles or getting
cash back on qualifying purchases. Other banks offer low interest
rates and free gifts to encourage you to transfer a balance
from another credit card to theirs.
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