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Tips for avoiding late fees

  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 money."

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.


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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 it's working.

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 industry norms.

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 better.

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 more cash.

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 address.

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



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