Tips for avoiding
Credit card penalties have never been more punishing.
Late fees, over-the-limit fees and penalty interest rates keep
climbing higher and higher with penalty fees hitting the $39 mark.
Three major credit card issuers have ratcheted up their late fees
to $39. MBNA America and Bank of America will slap a $39 fee on any customer
with a balance of $1,000 or more who pays late. Tardy customers with balances
less than $1,000 pay fees ranging from $15 to $29.
Providian charges a $39 late fee to any customer with a balance
of $200 or more who misses a payment deadline. Providian customers with balances
less than $200 face $19 late fees should they pay late.
"What on earth cost them $39 for you being two days late?"
asks Scott Bilker, the author of "Talk Your Way Out of Credit Card Debt"
and founder of DebtSmart.com. "It's obviously just a way for them to make
Over-the-limit fees are nearly as harsh. MBNA America charges
a $39 fee if you charge beyond your credit limit and you carry a balance of
$1,000 or more. Smaller balance customers face $15 and $29 fees should they
exceed their credit limits.
Providian reserves its $39 over-the-limit fees for customers who
exceed their credit lines by 2 percent or more. Everyone else gets a free pass.
At Bank of America, no customer gets a free pass when it comes
to over-the-limit fees. Charge $1 more than your credit line and you'll be slapped
with a $35 penalty fee. Citibank, Bank One and American Express also charge
$35 fees to any customers who charge beyond their credit lines.
Bankrate.com has a chart
that rounds up the penalty policies from America's top credit card issuers.
The aim of these pumped-up penalty fees is to boost profits. And
In 2002, the credit card industry had its most profitable year
in 13 years. Pretax return on assets, a key measure of profitability, averaged
4.2 percent in 2002, the highest level since 1988, according to R.K. Hammer
Investment Bankers in Thousand Oaks, Calif.
The year 2003 was an even better year for credit card issuers.
Pretax return on assets averaged a cool 4.4 percent in 2003. Fee income accounted
for an even larger slice of the profits. Fee income accounted for 35 percent
of profits in 2003, with 27 percent of those fees coming from penalty fees.
With penalty fees this profitable for issuers it's easy to see
why super-harsh fees and penalty interest rates 20 percent or higher have become
If all that weren't bad enough, many credit card issuers will
now raise your interest rate if you slip up with another creditor.
So pay late on your Sears bill and the interest rate on your Citibank
credit cards could shoot up.
Credit card companies peek at customer credit reports on a regular
basis. Trouble anywhere on your credit report could mean a higher interest rate
on your credit card.
"It could accelerate the interest rate on the card in good
standing up to 18 to 20 percent," Catherine Williams, vice president of
financial literacy with Money Management International.
The best advice for card customers is to keep your credit record
as clean as possible.
"Cleaning up that credit report could save you a higher interest
rate," Williams says. "The best investment you can make is purchasing
your credit report from each of the three bureaus."
Review your credit report at least once a year and correct any
errors. The last thing you want is to get zinged with a high rate on your credit
card because of an error on your credit report.
And most importantly, pay that card bill on time every single
month. These tips and payment strategies will show you how:
Mind those payment guidelines:
A key step is following your card issuer's payment guidelines precisely. These
guidelines are outlined on the back of each credit card bill.
When it comes to processing credit card payments, all these
little details are incredibly important. Payment guidelines may include everything
from a specific payment address to the time of day by which the payment must
be received to be credited that day. Many issuers also stipulate that payments
must arrive in the preprinted envelope sent to the customer.
While the Fair Credit Billing Act requires issuers to credit
payments the day they are received, each issuer is allowed to set specific payment
guidelines. If any of the guidelines are not met, the issuer can take as many
as five days to credit the payment.
An on-time payment could easily become late during that five-day
period, so follow those payment guidelines carefully.
To ensure your payment gets credited immediately:
- Use the preprinted envelope provided by the credit card company.
- Include the billing coupon, and be sure to write the amount
being paid in the box provided.
- Make sure checks are legible and the payment amount is correct.
Sign the check. Write the credit card account number on the check.
- Send payment with proper postage to the payment address requested
by the issuer. It's a good idea to mail your payment at least one week in
advance of the due date. Ten days to two weeks prior to a due date is even
Pay minimum immediately: The safest
strategy for anyone sending a card payment by snail mail is to pay the bill
as soon as it arrives, even if you can only make the minimum payment. Giving
your issuer the 2 percent minimum payment it wants ASAP is a great way to guard
against late fees. And you can always send a bigger payment when you've got
Move your due date: Are your credit
card bills due at a time of the month when you're running low on cash? Many
card issuers will let you set your own due date if you ask. Why not time it
so your credit card bill arrives right after a paycheck? That way you'll have
plenty of cash to pay your bill each month.
Consider automatic online, on-time payments:
Paying bills online can be a great buffer against late fees. Most major issuers,
including Citibank, MBNA, Discover and American Express, accept online payments.
You can sign up for these services on issuer Web sites. Choose an online payment
amount that automatically covers the minimum amount due on a credit card each
month. Next, choose an automatic payment date well in advance of your credit
card due date. This is a great way to pay credit card bills while traveling.
To keep your interest costs down, you'll want to make additional card payments
online or by snail mail as soon as you can.
Pay by phone: Paying by phone is
a quick and easy way to make a last-minute card payment. Just grab your checkbook
and call the toll-free number on the back of your credit card. You'll be asked
for a check number and the bank routing number, which is printed at the bottom
of every check. After you're done with the call, rip up the check because you
won't be able to use it again. Many credit card companies accept payments by
phone. Some issuers charge fees ranging from $5 to $15 for this service. Be
sure to ask.
Send by express: If the due date
is looming, consider sending a credit card payment by express mail or wiring
the payment with Western Union. The U.S. Postal Service charges $13.65 for an
express mail flat rate envelope, which guarantees next-day delivery by noon
to most destinations. Wiring your payment will cost you as well. Western Union's
fees for money-wiring service vary depending upon the amount of payment. These
express services, while costly, are still cheaper than most credit card late
fees. Make sure you send your express payment to the proper address. Many issuers
have separate payment addresses for express payments. The last thing you want
to do is slow the processing of an express payment by sending it to the wrong
No fee if you've behaved: Zapped
with a late fee even though you mailed your payment well before the due date?
Call and ask your issuer to waive the fee. Many issuers will waive late fees
as a courtesy to customers with good payment records.
"I would be floored if it's a first time late and you
couldn't get it waived," Bilker says.
-- Posted: April 6, 2004