By Nancy Nall Derringer
1. "We're just waiting for you to screw up."
Many things can bump your credit card interest rate into the red zone, but nothing faster than what's called "universal default." You can make all your credit card payments religiously and for a long time, but fall behind on your electric bill and, suddenly, you're a deadbeat who will be charged accordingly. Rates can change on short notice, from low and reasonable to 25 percent or more.Card companies claim that what they're doing is managing risk. Consumer groups disagree, charging that it's all about profit, since many people in universal default aren't deadbeats by any reasonable definition. Say, for example, you're disputing a charge on a medical bill or waiting for an insurance snafu to resolve itself. If a billing clerk kicks it to collections, you're in universal default. Or suppose your credit score drops a common event that may be entirely unrelated to your bill-paying behavior. That's also likely to push your interest rate higher.
The best way to avoid the problem is the most obvious: Pay your bills on time. Bankrate.com, a consumer-lending education Web site, further advises that if you have a disputed bill, resolve it before it reaches collection status.
2. "When it comes to identity theft, we're part of the problem."
Identity theft victim Tony Sciulli of Santa Barbara, Calif., says it started with a forged credit application a $3,000 balance was mysteriously transferred to a new card in his name, followed by a ready-made check billed to one of his other cards. What can you do to avoid this sort of low-tech thievery? Buy a shredder, and minimize the credit applications coming to your house by registering at OptOutPrescreen.com.
But paper solicitations are only the tip of the iceberg. As Internet security expert and author Bruce Schneier warns, "Data about you is not under your control." He points to examples such as the May 2005 case involving Bank of America and Wachovia, in which a man allegedly posing as a collection agent paid bank employees for customer data in New Jersey. (The case is still being adjudicated. The banks notified customers their data may have been compromised and offered to help watch their accounts for suspicious activity. So far, no account fraud has been reported.)
But John Hall, a spokesperson for the american Bankers association, insists that banks have "Pentagon-level security." His advice: "Monitor your accounts. Protect your passwords and your computer."
3. "Your children are our future."
The best way to avoid the problem is the most obvious: Pay your bills on time. Bankrate.com, a consumer-lending education Web site, further advises that if you have a disputed bill, resolve it before it reaches collection status.
2. "When it comes to identity theft, we're part of the problem."
Identity theft victim Tony Sciulli of Santa Barbara, Calif., says it started with a forged credit application a $3,000 balance was mysteriously transferred to a new card in his name, followed by a ready-made check billed to one of his other cards. What can you do to avoid this sort of low-tech thievery? Buy a shredder, and minimize the credit applications coming to your house by registering at OptOutPrescreen.com.
But paper solicitations are only the tip of the iceberg. As Internet security expert and author Bruce Schneier warns, "Data about you is not under your control." He points to examples such as the May 2005 case involving Bank of America and Wachovia, in which a man allegedly posing as a collection agent paid bank employees for customer data in New Jersey. (The case is still being adjudicated. The banks notified customers their data may have been compromised and offered to help watch their accounts for suspicious activity. So far, no account fraud has been reported.)
But John Hall, a spokesperson for the american Bankers association, insists that banks have "Pentagon-level security." His advice: "Monitor your accounts. Protect your passwords and your computer."
3. "Your children are our future."
It wouldn't surprise most parents to know their college-age kid can get a credit card as easily as a beer. after all, university students, however financially dependent, are adults whose earning years are just beginning, making them "good risks" for creditors. What parents might not know is the fact that card issuers are now taking that reasoning a step further: "The big trend is marketing to high school students," says Robert E. Manning, author of "Credit Card Nation" and a professor at the Rochester Institute of Technology.
Manning says most parents don't realize how early a child's name, address and other information can turn up in the databases used by card companies to market their products or that kids as young as 16 can get cards without parental permission. "[Card issuers] know that if a kid gets in trouble, usually the parent will pay," he says.
What can parents do? Protect your child's information, and assume that all requests, however legitimate, will land it in a database somewhere. Gift cards, for instance, may offer protection if lost or destroyed but require personal data. Manning and other experts advise teaching teens about credit well before they get their first cards and monitoring their spending as they learn to use them.
4. "Our 'freebie' rewards are anything but."
Manning says most parents don't realize how early a child's name, address and other information can turn up in the databases used by card companies to market their products or that kids as young as 16 can get cards without parental permission. "[Card issuers] know that if a kid gets in trouble, usually the parent will pay," he says.
What can parents do? Protect your child's information, and assume that all requests, however legitimate, will land it in a database somewhere. Gift cards, for instance, may offer protection if lost or destroyed but require personal data. Manning and other experts advise teaching teens about credit well before they get their first cards and monitoring their spending as they learn to use them.
4. "Our 'freebie' rewards are anything but."
Shhh! Don't Tell
Here are more secrets other people in your life may be keeping from you, too.
- Your Dentist
- Your Veterinarian
- Your Architect
- Your Contractor
- Your Interior Designer
- Your Butcher
- Your Car Insurer
- Your Credit Card Company
- Your Plumber
In the hypercompetitive credit card marketplace, rewards are a way for banks to target big-spending niche audiences frequent fliers, for instance. But these programs often come with hidden catches, such as exorbitant interest rates and high annual fees, so it's important to do your homework. "[A rewards card] doesn't make financial sense for just anyone," says Manning, of the Rochester Institute of Technology.
Before signing on, figure out how much you'll have to spend to earn the incentives from a given card. If the math works out to anything less than one penny earned per dollar spent (or a mile per dollar in the case of mileage cards), then you could do better.
Also, be sure to look for the rewards that best suit your needs. For example, if you want an abundance of options, from retail goods and services to charitable donations, American Express's Membership Rewards cards let you accumulate points at the rate of a penny per dollar spent, double that at gas stations and drugstores. Or if it's air miles you're after, the United Mileage Plus Signature Visa is one card that stands out from the pack, with its 1-mile-per-dollar ratio and host of travel benefits, including upgrades.
5. "Debit cards should come with a warning: 'Use at your own risk.'"
Before signing on, figure out how much you'll have to spend to earn the incentives from a given card. If the math works out to anything less than one penny earned per dollar spent (or a mile per dollar in the case of mileage cards), then you could do better.
Also, be sure to look for the rewards that best suit your needs. For example, if you want an abundance of options, from retail goods and services to charitable donations, American Express's Membership Rewards cards let you accumulate points at the rate of a penny per dollar spent, double that at gas stations and drugstores. Or if it's air miles you're after, the United Mileage Plus Signature Visa is one card that stands out from the pack, with its 1-mile-per-dollar ratio and host of travel benefits, including upgrades.
5. "Debit cards should come with a warning: 'Use at your own risk.'"
Vicki Jacobson's college-student son, Craig, was coming home last summer from a european vacation. Arriving at the airport, unable to speak Italian and his available cash growing short, he attempted to pay for his taxi ride with a debit card. The driver ran the card three times and a credit card once, but it was unclear after each pass whether the transaction had gone through. Finally, anxious about catching his flight, Craig paid with his dwindling euros and left Italy behind. You can probably guess what happened: He was charged for that taxi ride three times on the debit card and once on the credit card. And that's when the fun really started.
Debit cards resemble credit cards in all visible ways, but they don't offer purchase protection. since they draw on a checking account, debit cards are essentially checks in plastic form. By contrast, credit cards constitute a loan it's the bank's money, so the bank has more reason to protect it.
Craig Jacobson's experience bears that out. Months later, Vicki says the credit card charge is nearly resolved, but that they'll have to eat the three erroneous debit charges. "It can just be very difficult to penetrate the system," she says.
Continue to Page Two
Debit cards resemble credit cards in all visible ways, but they don't offer purchase protection. since they draw on a checking account, debit cards are essentially checks in plastic form. By contrast, credit cards constitute a loan it's the bank's money, so the bank has more reason to protect it.
Craig Jacobson's experience bears that out. Months later, Vicki says the credit card charge is nearly resolved, but that they'll have to eat the three erroneous debit charges. "It can just be very difficult to penetrate the system," she says.
Continue to Page Two
