Top 10 hidden dangers of credit cards -- Page 2
By Peter Davidson • Bankrate.com

4. Two-cycle billing. While most card issuers use the standard one-month method to calculate interest charges, some use a method that calculates interest on two previous months' balances. Companies compute interest charges on your average daily balance by adding each day's balance and then dividing that total by the number of days in the billing cycle. Some do it on a monthly basis, but others use the average daily balance over the last two billing periods. If you carry a balance this usually means that you've lost any grace period on your new purchases. Unless you pay off your balance for two months in a row, the two-cycle method will include the prior cycle's average balance in calculating your finance costs even though you paid off that cycle's balance in full. You don't face that expense with a single-cycle card.

5. Inactivity charges. Credit card companies don't make money if you don't use your cards. Keeping your card in your wallet could incur a hefty fee, as much as $15 if you haven't swiped your card in six months, but charges may be incurred for shorter intervals.

6. Late payment fees. A recent study by Vertis, a marketing company that researches consumer credit usage and payment habits, found that 2 percent of all credit card holders occasionally miss getting their credit card payment in on time. They pay dearly. The national average is $29. MBNA (one of the largest issuers of credit cards), Bank of America and Providian are among the steepest chargers. Their late-paying customers get squeezed $39, according to Consumer Action.

And there's yet another downside to paying late: A higher interest rate. In a 2003 survey, Consumer Action found that just one or two late payments will trigger a higher interest rate.

7. Over-limit fees. Exceed your credit limit by even one cent and you'll be hit with over-limit fees of $25 to $39. And don't forget -- charges such as a $39 late fee can then trigger a $39 over-limit fee.

8. Balance transfer fees. It's the big tease: A rock-bottom introductory rate to transfer your balance, but that tantalizing low rate may come with a steep transaction fee, 3 to 5 percent, for transferring your balance to their card, which means transferring $1,000 at 4 percent will cost you $40. "It's really very tricky," says California attorney Howard Strong, author of Credit Card Secrets. He adds, "They have all these sneaky fees. You need to be extremely cautious."

By the way, last year, the industry took in $43 billion in fee income, up from $39 billion in 2002, according to R.K. Hammer Investment Bankers. The industry's take is expected to increase again this year.

9. Mandatory arbitration. "If there's a dispute, you may have given up your right to your day in a court of law," says attorney/author Strong. "If that's the case, your only recourse is mandatory arbitration."

10. Payment allocation. If you're carrying a balance, and you use your credit card for purchases and cash advances, or you're paying off a promotional rate and then add charges beyond the promotional period, your card company will first allocate your payments to the charges that will earn it the most money. In most cases, that means it will apply your payment to the balance that has the lower rate, thereby allowing the balance with the higher rate to accumulate and compound interest.