Credit Card Disclosures-Read the Fine Print

It is said that you are only as good as your word.  This applies to both your personal and business life.  I wrote about the importance of developing and maintaining business relationships.  However, relationships take time to build, and business moves at a fast pace these days.    In today’s world, many business relationships are reduced to a number, your FICO credit score.  The higher your score, the more trustworthy you are, and the better you look in the eyes of lenders and businesses you deal with.  With a higher score, you get a higher level of service, and pay less in interest.  Businesses do not take the time to get to know you and see what kind of person you are.  The relationship is based on just one number.  Fair or not, this is the reality we operate in.

In my real estate business, it is very important for me to have and maintain a high FICO score.  I am always looking for loan, or lines of credit to take advantage of business opportunities.  As a result, I manage my FICO score very aggressively.  I monitor my scores to make sure it is accurate at all times, and is always looking to improve it.  I probably am more in tune with my credit scores than most people, and I can give you many tips on how to use the FICO system to your advantage and to improve your score, but I will save that for another day.  However, my advice can be summarized in two points:

1. Pay your bills on time.
2. Charge on your credit cards only what you can afford to pay in full each month.

This advice seems obvious.  If you don’t pay your bills on time, you will appear be a higher risk to lenders, and your rate will go up.  What is not obvious is to the extent of the consequences if you do not pay your bills, and carry a credit card balance each month.  This is found in the credit card disclosures which all credit card companies are required to give to its customers, but no one reads.  If your credit card company has the Universal Default Clause in its disclosures, and most do, you are in serious danger of paying much higher rates on everything.  This clauses states that the credit card company can raise your interest rate if you are late on payments to ANY creditors.  This can include utilities, car loans, and home loans.  The credit card companies are actively reviewing your  credit files, and ready to pounce with a higher rate if you slip on any payments. If you have a late payment, you are in danger of the rate going up on ALL your credit card accounts.

Its not just late payments that could trigger the Universal Default Clause.  Interest rates could be increased if a consumer exceeds a credit limit, bounces a check, or applies for additional credit.  All of these things indicates a higher risk to the credit card company and results in higher rates for the consumer.

Paying your credit card balances in full is not only good financial sense, but it could cost you in ways you may not have considered.  Don’t jump on zero interest rate offers.  Most people have the best intention of paying off the balance during the introductory period, and using a interest free loan for the purchase.  However, in practice, most people end up do not up paying off the balance.  If you do not pay off the balance in full before the interest rate free period, you do not get charged interest from when the trial period ends, but from the original purchase date.  This could end up being a very expensive purchase if you don’t pay in full.

Similarly, if you do not pay your bill in full each month, and end up paying half of it, you will not be charged interest for the remaining balance, but for the entire charged balance.  This will continue until your bill is paid in full.  So, if you do not follow these two rules, you are in danger of paying much higher interest rates on you credit card accounts.

Reading the credit card disclosures and terms may not be the most exciting reading, but doing so will make you aware of the dangers of not paying on time, or carrying a balance.  You may need to find another credit card company that better matches your needs, and spending habits.  It may also save you a lot of money in the long run.