1. Minimum Variable Interest Rate
A variable interest rate rises and falls based on another interest rate, typically the prime rate or the fed funds rate. The would-be benefit to cardholders is that they can get a lower interest rate when the Feds lower interest rates. Except, some credit card issuers use a minimum interest rate that prevents your rate from falling too low, regardless of how low the index rate has gone.
How to avoid the costPay off your balance in full every month to avoid being affected by a higher interest rate.
2. Short Grace Period
A short grace period limits the amount of time you have to pay off new purchases and avoid a finance charge. The shorter your grace period, the less time you have to make your payment and the greater the chance the creditor can charge a finance charge on your balance. No matter how much they try to shrink your grace period, starting February 22, 2010 credit card companies still have to mail your billing statement early enough so you can pay your balance in full before the grace period ends.
How to avoid the costIf your credit card has the option to access and pay your bill online, take advantage of it. Otherwise, be prepared to mail your payment as soon as you receive your billing statement.
3. Higher Late Fees on Lower Balances
Many credit card companies have a tiered late fee that used to charge the highest late fee on balances above $1,000. The Center for Responsible Lending reports that credit card issuers have changed that. Now, some cardholders with a balance as low as $250 will receive the maximum late fee.
How to avoid the costDon't pay late. Plan to send your payment a few days in advance of the due date. Use online bill pay to set up an automatic payment. Make the payment by phone, even if there's an extra charge it's better than a late fee. If you have to snail mail your payment, don't hesitate to mail it express it with priority mail or overnight service. Any extra charge you pay for express mail will be less than the late payment.
4. Inactivity Fees on Unused Credit Cards
If you thought it was bad for a credit card issuer to close your unused credit card, then you'll be livid at the credit card inactivity fee. Go without using your credit card for 12 months and you might get charged for having a dormant credit card. It can get worse. If you don't look at that card's billing statements because you don't use it, you could miss the fee, get charged a late payment fee and get a ding on your credit score.
How to avoid the costUse your credit card at least once a quarter, just to keep it active. Make a small charge on the card and pay off the balance when the statement comes. If you have an unused credit card, at least read the billing statement every month to catch any inactivity fee you may get charged.
